“But in the context of strong capital generation and liquidity, our expectation is for heightened competition in lending to attractive customer segments such as consumer and SMEs, as banks boost their market positioning,” said Carola Saldias, lead analyst for Spanish banks. “This has the potential to further squeeze sector margins, contributing to softer profitability in the second half of the year, alongside some deterioration in asset quality if exports suffer from a slowdown in global trade.”

The first quarter of 2025 saw double-digit YoY growth in net profits for our sample of banks (BBVA, Santander, Banco de Sabadell and CaixaBank), resulting in an average RoE of approximately 16%, up from around 13% in Q1 2024, and an average RoRWA of 2.47%, compared to 1.87% in Q1 2024.

“The positive results were driven by still-resilient net interest income, higher fee and commission income, and benefits from changes in the structure of banking tax payments from a one-time payment previously disbursed in Q1 to quarterly instalments,” said Saldias. But Q1 net interest income decreased YoY and QoQ as margins shrank despite higher business volumes. “Interest-rate hedging continues to be a key strategy to manage the downward pressure, amid expectations of additional interest-rate cuts,” Saldias added.

Fee and commission income continued to grow YoY but we expect this to stabilise in H2 2025 as AuM has plateaued, although there is still some upside from payments and credit card transactions.

Cost-income ratios remain strong, in a range of 36%-46% although they have deteriorated since FY2024. “We expect banks to maintain strong cost discipline in 2025 and cost-income ratios to stabilise between 40%-42%,” Saldias said, “as most banks have fully optimised their branch networks, while the revenue base decreases slightly compared to 2024.”

NPL ratios decreased QoQ, thanks to prudent risk management, supported by the stable macroeconomic environment, which continues to underpin asset quality in Spain. However, trade volatility related to export uncertainty is weighing on the medium-term asset-quality outlook.

The average CET 1 ratio of our sample was 12.94% in Q1, slightly higher than Q4 2024 because of organic capital generation. Following 2024’s positive results, distributions to shareholders for the Spanish banking sector were the highest for a decade. “Provided that results remain strong, we do not expect major changes to the 50%-60% distribution strategies of the four banks in our sample in coming quarters,” Saldias said. “Capital levels remain reasonable, considering the sector’s ability to generate capital organically.”

Having received the green light from almost all relevant authorities, a final decision regarding BBVA’s acquisition of Sabadell now rests with the government, which has until the end of June to grant approval. “The key risk to the transaction is if approval comes with harsh conditions that change the economic and financial rationale of the deal and pushes BBVA to reassess its value and eventually withdraw the offer,” Saldias cautioned.

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Scope has public ratings on Banco Santander and BBVA.

• See updated rating report on Banco Santander S.A, 6 March 2025.
• See Scope affirms and publishes BBVA’s A+ issuer rating with Stable Outlook, 13 December 2024

Scope has subscription ratings on the following Spanish banks. To view the ratings and rating reports on ScopeOne, Scope’s digital marketplace, or to register, please click on the following links:

• Banco de Sabadell SA
• CaixaBank SA