Caixabank ups profitability target, unveils $1.9 billion share buy-back

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)