Sabadell doubles Q2 net profit, lifts guidance for 2023

By Jesús Aguado

MADRID (Reuters) -Higher margins helped Spain’s Sabadell double net profit in the second quarter, beating market expectations and prompting the bank to lift its guidance for overall lending income and profitability in 2023.

Spain’s fourth-largest bank by market value reported a net profit of 359 million euros ($398 million) for April-June, compared with 179 million euros in the same period last year.

Analysts polled by Reuters had expected a net profit of 287 million euros.

The bank generated higher lending income both in its home market and from British unit TSB, where profit on a standalone basis rose by 25% in the quarter to 50 million pounds ($65 million). TSB’s net interest income (NII) – earnings on loans minus deposit costs – grew 9.7% year-on-year in the quarter.

However, Sabadell’s Chief Financial Officer Leopoldo Alvear warned on Thursday against market pressure to raise deposit costs at TSB, expecting NII at this unit to fall.

“Probably NII (in the UK) will come down in the coming two quarters in ’23, (as the bank) won’t be able to cope with the repricing of deposits,” Alvear told an analysts’ call, mirroring similar comments from its larger UK rival Barclays.

Shares in Sabadell were up 1%, adding to gains of around 13% in the last month.

Higher earnings helped Sabadell lift its return on tangible equity ratio (ROTE), a measure of profitability, to 10.78% in the second quarter from 9.9% in the previous quarter. It also raised its ROTE guidance for 2023 to around 10.5% from a previous target of above 9%.

European banks are benefiting from higher interest rates.

Sabadell’s NII in the quarter rose 30% year-on-year to 1.17 billion euros. Analysts had expected NII of 1.15 billion euros.

For 2023, the bank raised its NII growth guidance to more than 20% from 2022, against a previous forecast for high-teens growth, on the back of higher and more aggressive interest rate hikes, and Alvear was even more optimistic for NII in Spain in 2024 due to pending loan repricing.

Domestic rival Unicaja said its net profit rose by around 6% year-on-year in the second quarter, also supported by higher financial margins. Shares in Unicaja rose 2.8%.

($1 = 0.9014 euros)

($1 = 0.7712 pounds)

(Reporting by Jesús Aguado; Additional reporting by Emma Pinedo; Edited by Miral Fahmy, Mark Potter and Susan Fenton)