As results season approaches, Scope reports that Spanish banks reached their peak profitability in 2023. A media briefing points to rising interest margins driven by limited provisions for bad debts and tighter cost controls. The document suggests the gap between Spain-focused banking activity and international operations is likely to widen as 2024 nears.
Scope analysts expect profitability to ease modestly due to deposit revaluations and a gentle uptick in credit risk, yet solid asset quality and strong capital buffers should sustain the credit profiles of Spanish banks into 2024. Looking ahead, they forecast that Spain’s economy will continue to grow and outpace the euroarea and global averages. Analysts note a potential euro-area slowdown, with growth easing from 2.4 percent to around 1.8 percent in 2023.
The report also flags a risk: the possibility that the extraordinary banking tax could extend beyond 2024, introducing uncertainty for the Spanish banking sector. It notes this tax trend affecting banking activities is being observed across other European nations. A counterbalancing strength is the broad retail funding base, as customers move from current accounts to term deposits. Asset quality remains stable, although the retail sector and small and medium enterprises may carry higher credit risk.
still view
Even as taxation in the banking environment evolves, Scope maintains a stable outlook for European banks. Profitability has risen, balance sheets are clearer, and sizable capital buffers help weather operating-condition deterioration while only a modest economic recovery is anticipated.
In Scope’s assessment the sector will endure through the year thanks to stronger credit fundamentals than in prior years. Deterioration risk and recovery factors appear balanced. The head of financial institution ratings, Marco Troiano, explains that Spanish banks are expected to peak in 2023 and begin a gradual decline in 2024 and 2025 as net interest margins normalize and credit risk rises modestly. Under the base scenario, a net loss is anticipated in 2024 for the banks evaluated by Scope. [Scope attribution]
margin maintenance
In this projection, deposits are likely to continue pressing margins downward. The broad retail financing base is identified as a strength, with customers increasingly shifting liquidity from current accounts into term deposits.
Although defaults have shown signs of stabilizing, asset quality metrics remain resilient. A deterioration is expected to emerge in the first half of 2024. The analysis also notes that initial lending to consumers, SMEs, and highly leveraged firms, along with fluctuations in emerging markets, will influence risk ratings.