Cost of equity for Spanish and European banks

Cost of equity for Spanish and European banks

Fecha: marzo 2022

Marta Alberni, Ángel Berges and Marí­a Rodrí­guez

Bank capital

SEFO, Spanish and International Economic & Financial Outlook, V. 11 N.º 2 (March 2022)

The banks’ earnings recovery in 2021, and the prospect of rate normalisation in the relatively near future, drove significant growth in the Spanish and European banks’ share prices up until the outbreak of the crisis between Russia and Ukraine injected fresh market volatility. Nevertheless, the perception remains that the banks’ return on equity (ROE) does not sufficiently cover the estimated cost the market attributes to that capital (COE); however, if recent favourable ROE performance is sustainable over time, there could be significant room for upside in bank stock valuations.

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