Spanish banks still drag their feet with the price they pay on term deposits from private customers. After increasing the average rate on these savings products, it rose from 0.72% for deposits signed last December to 2.21% for those signed in June. Even though salaries saw little change, with July at 2.332%, August at 2.308%, and September at 2.326%, the Spanish banking sector remained one of the slowest in Europe in rewarding customers. Across the euro area, the average rate on new deposits climbed to 2.7% in June from 1.47% in December, reaching 3.08% in September, illustrating a widening gap in Spain compared with the broader eurozone. (Bank of Spain, ECB)
Banks’ profits from households are already at an all-time high
Therefore, the gap between what European banks pay on average for new deposits and what Spanish institutions pay is among the smallest of the 20 euro-area members. The difference stood at 0.16 percentage points in December 2021, when the ECB began tightening policy; 0.264 points in July 2022, when rates rose for the first time; and 0.75 points last September. As a result, the average deposit balance yield for households in Spain reached 1.5% while the Eurozone average stood at 2.07% (Bank of Spain; ECB data releases)
Households withdrew 21.847 billion euros from banks up to August, the highest figure in the last two decades. (Bank of Spain)
Traditionally, the spread between new-deposits in Spain and the euro-area average wasn’t that large. Since statistics began in 2003, the difference has fluctuated by just a few decimals or a few tenths. In fact, there were periods when Spanish banks paid more than their European counterparts between 2004 and 2006 to support a real estate boom, or between 2007 and 2011 and in 2012 during the banking crisis. Recently, however, that gap widened because Spanish institutions have had access to ample liquidity, weaker demand for credit, and only a modest rise in deposit returns, which contributed to higher overall profits for lenders (Bank of Spain, ECB)
Break a profit record
Monthly payments on mortgages rose as bank margins widened. The number of houses financed increased rapidly—from EUR 1.158 million to EUR 1.343 million in December 2021 and reaching 2.501 million since last September. By contrast, households faced higher expenditures tied to deposits and current accounts, rising to 212 million from 14,226 million. This shift helped push the monthly margin for institutions up by 946 million, a gain of 71% to 2,275 million overall (Bank of Spain, ECB)
Households with deposits and balances contributed to the rise in total assets, with 20.348 billion units in treasury bills held by households at the time. An important factor is that about 89.4% of household outlays are reflected in existing accounts, with the average interest being a modest 0.131%. In past cycles of rising rates, savings tended to be spread between accounts and deposits, representing roughly 50% to 60% of family assets. This means that even with higher term-deposit rates, banks still pay out less interest relative to past comparable episodes. In August, the aggregate deposit balance increased by 5.889 billion while account balances fell by 5.212 billion; still, the overall gap remained substantial (Bank of Spain)
Mortgage costs
Banks defend the relatively low return on deposits by noting that Spain’s mortgage costs are cheaper than the euro-area average for similar financing instruments. This holds when comparing long-term financing costs, such as the 10-year Spanish Treasury bond, which banks use as a benchmark for long-term lending. Yet, the average Spanish mortgage balance was lower than the Eurozone average in December 2021 (1.099% vs 1.63%), and has since risen sharply to around 3.495% in recent times as variable-rate loans dominate the mix. For new mortgages, Spain’s rate was only slightly below the European average in September (3.85% vs 3.93%). (European Central Bank, Bank of Spain)
The bank will close the credit tap further after cutting it for a year and a half
Additionally, lenders have not fully passed through higher reference rates to deposits and loans at the same pace as the euro area. Officials note that policy tightening has been reflected less in consumer credit pricing than in deposit terms, contributing to the unusually strong profit figures seen recently. All this helps explain why the six Ibex 35 institutions Santander, BBVA, CaixaBank, Sabadell, Bankinter and Unicaja Banco together earned 19.761 billion euros, up 23.4% from January to September (Bank of Spain, ECB)