Banco Sabadell Half-Year Results Overview

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Banco Sabadell closed the first half of the year with a net profit of 791 million euros, up 40.3% from the same period last year, according to a press release sent to the National Securities Market Commission (CNMV) on Tuesday.

The bank explained that the earnings growth was driven by rapid expansion in the core business, especially financing for small and medium-sized enterprises and corporate clients, as well as mortgages. It also credited a sustained improvement in credit risk profiles, which allowed asset quality to improve again and provisions to be reduced.

The bank’s chief executive, César González-Bueno, noted that the results result from a radical transformation of the business carried out over the last three years and highlighted that profits are at record levels.

He celebrated that the strategy is delivering results and stated that the bank is stronger and more efficient, with a solid financial and operational foundation aimed at accelerating growth and profitability.

The chief financial officer, Leopoldo Alvear, emphasized the evolution of both earnings and the balance sheet: Our numbers show that we are performing exceptionally well.

Pay out at 60%

On the other hand, the bank approved a shareholder remuneration policy through 2025 totaling 2.9 billion euros, 500 million more than initially planned, with a pay-out of 60% of current year profit.

Recurring payments over the next two years will total 0.53 euros per share, equating to 27% of each share’s value.

The first payment, scheduled for October, will be a cash interim dividend of 0.08 euros per share, representing a total outlay of 429 million euros, up 33% versus the sum of the two dividends paid in the previous year.

Income growth

Looking back at the income statement, Sabadell reported that banking income (net interest margin plus net fees) reached 3.168 billion euros in the first half of 2024, up 6.8% year over year and 1.6% above the prior quarter.

Profit enabled the bank to raise its return on tangible equity (RoTE) to 13.1% at the end of June, an improvement of 395 basis points year on year, versus 12.2% in the prior quarter and 11.5% at the end of 2023.

The CET1 capital ratio rose to 13.48%, up 18 basis points in the quarter and 27 basis points from the 2023 close, incorporating the effect of the higher pay-out from 50% to 60%.

Interest income grew 9.8% year over year to 2.493 billion euros, supported by a 3.18% rise in client margin, while commissions fell 3.3% to 674 million.

Costs and provisions

Total costs amounted to 1.515 billion, up 2.5% year on year, while recurring margin rose 11% to 1.652 billion due to higher banking income and controlled costs, and the efficiency ratio improved by 3.8 percentage points to 48.3%.

The earnings evolution was also driven by a reduction in total provisions, down 16.9% year on year to 389 million, reflecting an improved credit risk profile across all segments and a favorable macro environment.

Commercial activity

Banco Sabadell closed the first half with an gross loan portfolio of 155.164 billion euros, up 0.9% year on year, with strong growth in new lending to SMEs and companies, as well as in mortgages and consumer credit.

Business lending in Spain, comprising medium- and long-term financing plus credit lines, reached 8.674 billion euros, up 35% year on year, while working capital volumes fell 5% to 15.079 billion.

Mortgage approvals rose 14% to 2.407 billion, with a 17% increase in the average loan size, while consumer credit approvals climbed 17% to 1.194 billion.

The bank noted that the probability of default in this business line remained historically low in the first six months of the year, and as much as 30% below 2023 levels.

Savings

Customer resources managed by the group, both on and off balance sheet, rose 2.1% to 206.742 billion.

The bank explained that savings and investment products in Spain increased by 2.0 billion, bringing the total to 60.6 billion.

Total assets for the group stood at 244.328 billion euros, a 0.4% year-on-year rise despite the full repayment of the TLTRO III facility.

NPLs

The non-performing loan ratio stood at 3.21% in June, down from 3.46% in the previous quarter, while the coverage of problematic assets was 56.8%, up 3.7 percentage points year on year.

Coverage of loans in default (stage 3) rose to 59.7% (+4 points) and asset coverage rose to 39.5% (+4 points).

Problematic assets declined in the second quarter by 316 million euros from the previous quarter, ending at 6.341 billion, of which 5.439 billion are problem loans and 902 million are foreclosed assets.

TSB

TSB ended the first half of the year with an individual net profit of 79 million pounds (about 93.7 million euros), down 24.9%, and in the second quarter with a profit of 41 million pounds (about 48.6 million euros), down 9.1% on a quarterly basis.

The positive contribution of the British arm to Banco Sabadell’s accounts reached 49 million euros in the second quarter and 95 million euros in the first half.

TSB reduced its recurring margin by 23.5% year on year to 138 million pounds at the end of June, though it rose 25% compared to the second half of 2023, indicating a positive trend and improvement.

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