Spanish banks ahead of the return to positive interest rates

Spanish banks ahead of the return to positive interest rates

Fecha: septiembre 2022

Santiago Carbó Valverde and Francisco Rodríguez Fernández

Bank profitability

SEFO, Spanish and International Economic & Financial Outlook, V. 11 N.º 5 (September 2022)

Banks have the opportunity to advance on the challenge of boosting their profitability. With interest rates gradually rising, the banks are looking at business and margin growth prospects not enjoyed in recent years. However, the new rate climate is not all good news for the banks, particularly in the current complex economic environment, characterized by high uncertainty (largely as a result of inflation and deteriorating confidence), which does not bode well for immediate growth in business lending volumes sufficient to translate into significant growth in profitability in the near-term. Indeed, latest available figures show that prior to ECB rate hikes, Spanish banks´ net interest margins remained stuck at 0.8% of average total assets, with interest income at around 1.1% and interest expense at 0.3%. That said, Spanish banks remain at the forefront of increasing operating efficiency through reducing operating expenses and fee and commission income has been growing, albeit displaying a high degree of volatility. Moreover, a number of risks carried over from the previous financial crisis remain, including those related to: business sector vulnerability; the ability to repay the state-guaranteed loans extended during the pandemic; and, the looming end of the various credit relief schemes.

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