On the brink of banking results season, Scope agency points out that Spanish banks have reached maximum profitability in 2023 According to a report sent to the media this Monday, the improvement in interest margin is due to limited provisions on bad debts or the containment of costs. The document explains that the gap between business in Spain and business abroad will tend to widen by 2024.
“Although overall profitability will decline moderately as a result of deposit revaluation and slightly higher cost of risk, together with controlled asset quality and capital positions it will continue to support the credit profiles of Spanish banks into 2024,” Scope analysts said. stated. As we look to next year, Scope points out that Spain’s economic growth will be maintained and exceed the world’s growth eurozone. Analysts point out that “the slowdown in the euro area may increase from 2.4 percent to 1.8 percent in 2023.”
The report also points out that there is a risk that the extraordinary banking tax will be extended beyond 2024, adding uncertainty to the Spanish banking sector. “This trend towards tax banking activities is also observed in other European countries.”, the report says. But the broad retail financing base represents a strength point for Spanish banks, as customers increasingly switch from current accounts to term deposits. “Asset quality is stable, but the retail sector and SMEs may pose greater credit risk,” the document states.
still view
Despite the new taxation developing in the banking sector environment, Scope agency maintains a stable outlook for the European banking sectorSince increasing profitability, clearing balance sheets or excess capital are large buffers against deterioration of operating conditions and only a modest economic recovery.
“The sector will resist this year thanks to stronger credit fundamentals compared to previous years. The risk of deterioration and recovery factors are balanced.”Marco Troiano, head of financial institution ratings at Scope Ratings, said: “In our view, the profitability of Spanish banks will peak in 2023 and start to decline in 2024 and 2025 due to the normalization of net interest margins and a moderate increase in credit risk. None of the banks in our sample will achieve this, though. Under the base scenario we use, we will record a net loss in 2024,” Troiano explains.
margin maintenance
For this exercise, The firm believes that deposits will continue to put pressure on margins. Although broad retail financing base is a “strong point” bankingThe analysis house shows that customers are increasingly shifting their liquidity from current accounts to term deposits.
“Although the decline in defaults appears to have bottomed out, asset quality metrics have been resilient so far. We expect some deterioration to begin to materialize in the first half of 2024.” Initial loans to consumers, SMEs and highly leveraged companies, as well as fluctuations in emerging markets, were also influential.“, the risk rating agency warned.