Banks margins: Price, volume and composition effects - Spain in a European context
Banks margins
Fecha: julio 2024
Marta Alberni, Alejandro Montesinos and María Rodriguez
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º4 (July 2024)
The two years since the start of rate tightening have been marked by very positive net interest margin dynamics in the European banking sector in general and in the Spanish sector in particular. Within this context, various factors have shaped the trend in margins, with some making a clearly positive contribution compared to others that have been less favourable and have even called into question the sustainability of current margins. Broadly speaking, the return on interest-bearing assets has been boosted significantly by the rate effect, compared to a neutral or even negative volume effect, in line with meagre growth in credit, especially in Spain. As regards the cost of deposits, this has been shaped by a different strategy pursued by the Spanish banks compared to their European peers as a whole. This liability price management strategy has contributed to a different pattern in funding inflows and outflows and significant reconfiguration of the banks’ pool of funding, marked by a bigger share of wholesale funding, particularly during the past year, when the banks have taken advantage of sharp tightening in their bond spreads. A disaggregation of the rate, volume and funding reconfiguration effects helps to explain the incremental growth in the Spanish banks’ net interest margin relative to their European counterparts.