Iñigo Vega (Jefferies) | Spanish Banks’ 3Q24 earnings season kicked off with BKT; we preview SAN, UNI, CABK and BBVA. We expect the focus to remain on domestic NII resilience despite falling rates. While fees are expected to remain under pressure in the quarter, asset quality shows no signs of deterioration. We see the NII miss at BKT as idiosyncratic and don’t read-across to other peers. No major changes in trends expected in Latam but high LT rates continue to weigh on valuations.
Key points to watch:
Spanish businesses: We expect the focus to be overwhelmingly on NII, which has already peaked and is now set to fall q/q, as customer margins compress. With average 12m Euribor down 50bps in the quarter, asset margins will narrow, and banks with higher exposure to corporate lending (notably Santander) will be more impacted. However, we expect all banks to be able to manage down, or at least keep stable, the cost of deposits in the quarter. Fees are likely to remain under pressure in the still high rate environment, and being impacted by CIB seasonality, although wealth management performing well. Asset quality remains benign, with no apparent signs of stress in the books, and the Spanish consumer still sitting on a sizeable liquidity buffer.
Bankinter read-across? Not really. The 3Q earnings season debuted with Bankinter, which presented a negative surprise on margins (see here). While asset margins fell, in line with expectations, the cost of deposits was unexpectedly up 7bps in the quarter. Negative share price action was taken across the Spanish peers on the day, possibly as a read-across. However, we think the cost of deposits dynamics at Bankinter is idiosyncratic, and we expect the banks reporting next week to have managed CoD down in 3Q (at CaixaBank) or at least to have kept it stable (at Unicaja). The weak margins at Bankinter were a result of i) a digital account campaign that the bank ran in September, offering up to 3.25% on demand depos (see our take here), ii) rising deposit costs in Portugal and iii) the commercial strategy of the bank to gather deposits to be able to fund above market loan growth, or drive inflows into the WM biz. The weaker than anticipated print on Thursday doesn’t change our view of resilient margins at the remaining domestic peers.
Other key profit centers: In Mexico, Mexican banks had a good start to 3Q according to CNBV data, given resilient margins (despite an additional rate cut in early August) and asset quality trends generally supportive (excl. some over provisioning at BBVA in August). CNBV data for Jul and Aug suggests c2% upside to BBVA Mexico 3Q VA cons., with Santander numbers broadly in the right place.In Brazil the biggest source of pressure is LT rates but all eyes will be on NPL formation trends and credit growth. In Peru, data from the SBS for July and August suggests 3Q profits for BBVA Peru some 25m EUR higher than the VA consensus. In Turkey, the operating environment seems to be progressing on the path towards normalisation, but questions around the geopolitical backdrop persist. In 3Q, we expect to see some margin pressure given rising funding costs, as deposits are rolling off the FX-protected depo scheme and into costlier TRY depos.
