Top Stories
Caixabank ups profitability target, unveils $1.9 billion share buy-back
Global Banking & Finance Review®
Company
By Jesús Aguado
MADRID (Reuters) – Caixabank raised its key profitability target for 2024 and announced a 1.8 billion euro ($1.88 billion) share buy-back programme, expecting higher interest rates and economic recovery to boost banking revenue.
As part of a new strategic plan, Spain’s biggest domestic lender by assets said on Tuesday it planned to grow revenue by around 7% between 2022 and 2024, driven by an increase in insurance income and moderate growth in fees and commissions.
Against this backdrop, Caixabank targeted a return on tangible equity ratio (ROTE), a measure of profitability, of above 12% by 2024 from an adjusted 7.2% at the end of 2021.
At 0820 GMT, shares in Caixabank rose more than 4% compared to a 1.4% rise in Spain’s leading index Ibex-35.
The lender forecast Spain’s economic growth at an average 3.4% over the three years of the plan, boosting demand for mortgages and consumer loans.
It said that while the war in the Ukraine and its effects on energy prices would slow the pace of recovery in the short term, that would be offset by the return of foreign tourists, the normalisation of saving rates and the roll-out of EU funds.
Spanish banks, with a purely retail model, have been among the hardest hit by ultra low interest rates and are expected to benefit from tighter monetary policy.
Caixabank said it expected the 12-month Euribor rates curve to rise from an average of -0.5% in 2021 to 1.5–1.6% in 2023–24.
Net interest income – earnings on loans minus deposit costs – would rise by 8% in the period, the bank said, while its cost-to-income ratio would fall to below 48% from 58% at end-2021 thanks also to cost savings from its Bankia acquisition.
HIGHER COST OF RISK, BPI TO GROW REVENUES 9%
The bank plans to generate capital of around 9 billion euros, including a dividend payout policy of more than 50%, a 1.8 billion euro share buy-back to be distributed this year, or 7.7% of its outstanding capital, and solvency excess over 12%. The bank has a capital target of 11% to 12%.
Broker Jefferies said that revenue upsides would be partly offset by costs, with the bank targeting costs of 6.3 billion in 2024 versus consensus expectations at 6.0 billion euros and a step up in provisions.
Caixabank expected cost of risk, which measures the cost of managing credit risks and potential losses for the bank, to be lower than 35 basis points by 2024 from a target of around 25 basis points for this year.
The bank said its Portuguese subsidiary BPI is expected to grow revenues at an annual average rate of around 9%, with profitability and efficiency converging with those of the whole group.
($1 = 0.9580 euros)
(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro, Kirsten Donovan and Jane Merriman)
Return on tangible equity (ROTE) is a measure of a company's profitability that calculates how much profit is generated for each unit of tangible equity. It is expressed as a percentage and is used to assess financial performance.
A share buy-back is a corporate action in which a company repurchases its own shares from the marketplace. This can reduce the number of outstanding shares, potentially increasing the value of remaining shares and improving financial ratios.
Fees and commissions in banking refer to charges that banks impose for various services, such as account maintenance, transactions, and advisory services. These fees contribute to the bank's overall revenue.
The Euribor (Euro Interbank Offered Rate) is a benchmark interest rate that reflects the average rate at which eurozone banks lend to one another. It is used as a reference for various financial products, including loans and mortgages.
Explore more articles in the Top Stories category
