The operating environment in Spain remains supportive for banks as the domestic economy is expected to outperform much of Europe in 2024. “Spanish bank profitability is normalising from its 2023 peak but remains robust, primarily supported by net interest income,” said Carola Saldias Castillo, author of Scope’s latest Spanish banks quarterly. Even though first-quarter results were stable or lower than in previous quarters, the return on equity for our sample of banks remained above 10% and, based on the positive macroeconomic scenario, we expect most banks to maintain double-digit returns in 2024.

Further sector consolidation to increase scale, improve pricing power and reduce operational costs is on the cards for Spanish banks: BBVA’s bid for Banco de Sabadell highlights attractive risk-return opportunities. A BBVA/Sabadell merger would create a larger player with better pricing power and an ability to easily deploy capital, potentially changing the competitive landscape.

“The restructuring and downsizing that several banks implemented after the global financial crisis has left the sector well positioned in terms of operating capacity, but the large number of smaller entities with a more regional focus remains a challenge, both for larger players seeking organic growth and smaller challengers facing tough competitive dynamics,” Saldias Castillo said.

Household and corporate deposits continued to grow in Q1 from the previous three months as well as YoY, although these were primarily time deposits, implying a higher cost, reducing margins and profitability. Capital levels remain adequate in the Spanish sector. The potential introduction of a 1% Countercyclical Capital Buffer (CCyB) for domestic exposures in October 2026 would have a larger impact on capital requirements for those banks with a higher component of credit exposure in Spain (Caixabank and Banco de Sabadell), compared to those with relevant international operations

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