In recent months, Spanish banks have shown notably higher profitability for individual customers. This rise has been well documented since the European Central Bank began systematic measurements in January 2003, and it marks a sustained improvement that outpaces the twenty-year average across the euro area. The Spanish financial sector is benefiting from the ECB’s rate hikes, while opting to delay paying higher deposits for as long as feasible to support stronger mortgage returns and overall margins.
In banking terms, the gap between what banks charge borrowers and what they pay savers is known as the customer differential. It remains positive, a condition necessary for profitability, yet it widens as banks pursue greater earnings through their customer base. When the ECB tightens monetary policy, loan installments rise in step with negotiated terms, and new lending costs follow the same trajectory. These changes mirror the uptick in Euribor, the rate at which banks lend to each other. By contrast, lenders have been slow to boost deposits, leveraging their liquidity advantages and widespread branch networks.
Looking at the main reference rates, the gap between the average mortgage portfolio rate for Spanish banks to individuals, which stood at 2.35%, and the balance deposit rate, at 0.23%, rose by 2.12 percentage points in January—the highest since the ECB began this tracking in 2003. When focusing only on new mortgages and deposits opened in the first month of the year, the difference can be even larger, peaking at 2.6 points due to a 3.19% rate on certain housing loans—the highest since August 2012—while deposit rates edged down for the first time in a year from 0.64% to 0.59%.
European Central Bank surprises banks by raising deposit rates
Spanish institutions have continued to outpace the European average in profit growth, particularly in household profitability, which rose by 2.12 percentage points in the period observed. This is nearly double the improvement seen in July, when the monetary authority began tightening to combat inflation. In the same stretch, the eurozone’s average spread between bank lending and deposit rates shifted only modestly, while Spain’s domestic margin expanded further, underscoring a widening differential in profitability between Spanish banks and those in the broader euro area.
There is a clear pattern: lenders in Spain charge slightly more for loans while offering notably lower deposit rates. Specifically, loan portfolios for mortgages are at about 2.35% on average for families, versus 1.97% for the broader euro area. Deposits, however, are payed at a far lower rate in Spain, around 0.23% compared with roughly 1.34% elsewhere in the eurozone. New operations reflect a similar trend: housing loans average around 3.19% while time deposits hover near 0.59% against 1.64% elsewhere. This combination drives a profitability gap for households that is the widest on record, both in ongoing earnings and in new business deals.
For businesses, the picture differs. The average rate applied to corporate loan portfolios in January hovered around 2.93%, modestly above the eurozone average of 2.8%. Yet deposit balances for Spanish companies were 1.53%, slightly below the eurozone average of 1.65%. This mix yields a slightly higher efficiency in Spain’s corporate banking segment, though not as pronounced as the household segment. The profitability uplift for corporate lending sits about 1.4 percentage points above eurozone levels, still well below the 2.12-point household differential observed in January. This distinction reflects a different balance of risk, liquidity needs, and competition in the business sector compared with retail customers.
The key takeaway is that Spanish banks extended the period before raising deposit compensation, leveraging high liquidity from ECB support programs. During times when ECB rates were negative, banks did not pass those reductions to retail depositors, effectively absorbing the costs as a temporary loss to support balance growth and market share. As rates rose, banks sought to recoup those earlier concessions by improving profitability through customers, rather than by widening deposit payouts. In some cases, this strategy translated into heavier reliance on fee-based or investment products, including public debt instruments, which can carry higher fees and commissions but offer potentially higher yields than simple deposits.
Comparisons with the eurozone reveal a mixed picture. In periods of negative ECB rates (between mid-2014 and mid-2022), the eurozone average for new household deposits was higher than in Spain, indicating European banks paid more to savers at those times. As the ECB began lifting rates from July onward, deposit rates rose more quickly, which narrowed the relative gains for Spanish banks. The average mortgage rate in Spain during negative-rate years was also comfortably above the eurozone level, yet the overall profitability of Spanish households remained higher than the eurozone average, signaling better internal efficiency or different pricing dynamics within the Spanish market.
Overall, Spanish banking practices have allowed the sector to sustain high liquidity from ECB injections while pursuing profitability through a combination of targeted pricing, slower deposit increases, and selective product mixes. The broader European environment continues to exert pressure, but Spanish institutions have shown a willingness to adjust their strategies to preserve margins even as monetary conditions tighten. This approach may involve steering retail customers toward higher-margin products or investment-linked options, all while balancing risk, competition, and regulatory expectations to maintain a stable revenue base.