Spanish banks are in an almost dreamlike situation after six years of living poorly with negative interest rates. The price of money is at 3.5% in Europe, expenses haven’t gotten too out of hand with the CPI and bad debt isn’t showingat least for now.

The Big Six closed last year with a record aggregate profit of 20,849 million. In all cases, except Unicaja, it is the highest level recorded in its entire history. It even surpassed the credit boom years just before 2007, although keep in mind that most balance sheet sizes have grown since then thanks to mergers.

The big bank will get stay above that 20,000 million threshold for at least another three yearsaccording to analyst forecasts.

He will succeed, despite the money that the tax recently created by the Government, which will affect the 2023 and 2024 accounts. This year’s invoice is already known and exceeds 1,200 million euros.

The joint profit of the big six will jump from 20.850 million in 2022 to 21.892 million in 2023, according to the calculations. For 2025, the expectation rises to 24,700 million euros. Who will make the biggest jump is Unicaja (92% in the period) thanks to synergies with Liberbank.

In 2019, the pre-pandemic year, they earned 13.6 billion.

interest margin

Interest rates have been fattening the interest margin since the fourth quarter of last year. But the major impact on the income statement will be produced this yearor, because it is now that the bulk of mortgage portfolio in Europe. In Mexico, where several Spanish banks operate, the price of money is already at 11.25%; 4.25% in the United Kingdom; and 4.75%-5% in the United States.

Excluding international branches, banks operating in Spain will register this year a interest margin increase between 20% and 40%according to investment bank calculations.

The analysts of Santander predict a average increase of 24%. “Spanish banks will be one of the most benefited, as 60% of their credit portfolio is linked to variable rates”, they explain in a report.

The clear winner will be CaixaBank, which is very sensitive to rate movements. Morgan Stanley estimates a margin increase of 30%.

this exercise, costs will increase because inflation remains high and to her are both linked contracts with suppliers as leases of many corporate buildings and branches. Although, this will be partially offset by structural savings that have emerged from recent mergers (CaixaBank/Bankia and Unicaja/Liberbank).

O delinquency from the spanish bank is at 3.5%minimums for more than fourteen years. The logical thing is that it increases due to the difficulty of payment which will generate higher rates and economic slowdown among the most vulnerable customers.

Although, many experts believe it will only increase by one percentage pointwhy ICO credits are not giving negative surprises and employment is holding. PwC contemplates only 5% in the worst case scenario, a manageable level. In the 2008 crisis, default reached 13%.

What is more, Sector still has half of the buffer of provisions it made during the pandemic intact (between 4,000 million and 5,000 million). “Things have to get really bad for us not to see a substantial improvement in results in 2023,” says Fernando de la Mora, chief executive in Spain at consultancy Alvarez & Marsal.

Another thing is what happens to profitability. According to some analysts, the cost of capital of the banking business increased because of fees from 12% to 15%. The only one among the great ones that exceeds this mark is BBVA. This is what explains why they are trading below their book value.