Spain’s central bank data show that official interest rate hikes aimed at curbing inflation have pushed bank profits in the country to a level not seen in 16 years. Banks recorded 24.358 billion euros in 2023, excluding international operations, according to a report published by the Bank of Spain. The figure marks a 4.927 billion euro increase, a 25.3 percent rise from 2022, and the highest since 2007 when profits reached 25.111 billion amid the housing bubble. Even without considering the tax on banks introduced by the government, profits would have surpassed that peak, as the levy reduced profits by 1.263 billion euros for the main institutions, per the Bank of Spain’s release.
Even when inflation effects are adjusted, Spain’s banking sector shows profits at a multi‑year high. By inflation-adjusted standards, profits still rank among the top in the history of the sector, just behind the 2006 and 2005 peaks, and well above the pre-crisis years. It is important to note that those earlier high figures were affected by the housing bubble and subsequent losses that precipitated what is regarded as the most severe banking crisis in modern Spain. This context matters when assessing current results.
The main driver behind the earnings surge is the improved loan margin. As official rates climbed, loan costs rose rapidly while banks delayed higher payments on deposits to maximize net interest income. In 2023, the banking sector’s net interest income reached 37.244 billion euros, up 12.809 billion and 52 percent from 2022, marking the second-highest figure in history after 43.034 billion in 2009. This dynamic underscores how rising reference rates can compress funding costs and strengthen lending returns for lenders.
Overall profitability
Despite persistently high inflation, operating expenses for the sector rose much more modestly than revenues, increasing around 6.3 percent to 26.590 billion euros. Provisions for future losses also grew more slowly, by about 9.6 percent to 7.085 billion euros. All told, pre-tax profits advanced by 33 percent to 28.880 billion euros. Corporate taxes rose sharply, from 2.149 billion to 4.380 billion, helping to cap the net improvement at 25.3 percent. The tax burden relative to pre-tax income rose from 11 percent to 17.9 percent. Although the statutory corporate tax rate for banks is 30 percent, a variety of adjustments and deductions affect the effective tax base.
The total profitability of the Spanish banking sector, including other operations such as international activities, will be published by the Bank of Spain in April. Between January and September 2023, profits already reached 24.560 billion euros, a 25.9 percent increase over the same period in 2022. It is expected that the annual figure will exceed the 25.418 billion recorded in 2022, which itself was the highest since 30.640 billion in 2007. The ten largest banks in the country, which have already reported their results, earned 28.005 billion euros in 2023, up 6.211 billion and 28.4 percent from 2022. Taken as a whole, the sector is anticipated to post a figure somewhat higher still, given that smaller institutions hold a smaller share of the market.
The surge in bank profits has sparked social and political debate in recent years and has been cited by the government as justification for introducing a sector tax, which is likely to become permanent. The Bank of Spain’s governor proposed that banks be allowed to deduct the amounts set aside for reserves and capital from the tax base. However, the government’s position remains that the tax should ensure banks contribute to public services and meet stress-test standards. Banks have challenged the levy, arguing that their profitability is reasonable and in line with investor expectations.
Delinquency and credit quality
The Bank of Spain also updated January 2024 figures on delinquency. Mortgage delinquency stood at 2.58 percent in December, essentially unchanged from September, signaling stabilization after rising from 2.32 percent in 2022. The stock of non-performing mortgages declined slightly in the fourth quarter, easing repayment burdens as households benefited from favorable employment trends. The mortgage delinquency increase is explained by a faster decline in loan balances relative to defaults, but the data suggest households are absorbing higher payments as jobs remain strong.
Mortgage delinquencies and other consumer lending metrics also cooled towards the end of 2023. Delinquency on consumer loans fell from 4.34 percent to 4.28 percent, and family loans from 7.25 percent to 6.72 percent, while the rate for corporate defaults held steady around 4.06 percent. A slight uptick occurred in January, with the general delinquency rate at 3.61 percent, up from 3.54 percent in December, and the stock of non-performing debt rising modestly. Nonetheless, overall mortgage and credit delinquency remained well below pre-pandemic levels, suggesting a stable credit environment amid the inflationary landscape.