Banking relies on the rise in the Euribor to target new profit highs

The Spanish banking sector has begun reporting its first-half results, with many institutions pointing to the rise in the Euribor rate as a key factor driving new record profits. The shift marks a dramatic reversal from earlier years, during which banks operated under low interest rates and expanding loan portfolios. This change has been influenced by recent developments, including the war in Iran and the European Central Bank’s decision to raise interest rates for the first time in three years. As of this Wednesday, major Spanish banks such as Banco Santander have started releasing their earnings, signaling a potential turning point in the industry. For much of the past few years, banks had struggled with declining interest margins due to historically low rates. While they saw increased lending volumes, driven largely by housing market activity and a surge in mortgage loans, their profitability was tempered by lower returns on deposits. Now, with interest rates climbing, analysts suggest that the financial landscape could be shifting. The rising Euribor, which hit two-year highs, is expected to increase the profitability of loans, even though it might lead to reduced borrowing volumes. However, the transition is not straightforward. Pablo de la Torre of RBC anticipates a noticeable shift in the interest margin, driven by the current dynamics. He notes that there will likely be a revaluation of bank assets, particularly in the form of mortgages, as the Euribor rises. This effect, he explains, will take some time to materialize but is already beginning to show signs. Additionally, De la Torre predicts that the cost of deposits will also rise, potentially leading to more competition among banks to attract customers through attractive savings offers. Some analysts, however, remain cautious. They argue that it is still too early to see a clear impact of the rate hikes, given that the increase occurred in June, and the current results only reflect a few weeks of higher rates. These experts do not foresee a significant drop in credit demand, especially in the mortgage sector, which continues to thrive despite economic uncertainties. Investors, meanwhile, are looking for stable messages and subtle positive signals, rather than dramatic surprises, as they prepare for the year-end forecasts. Nuria Álvarez, an analyst at Renta 4, describes this quarter as relatively flat. She expects steady and cautious communication from banks, with a slight positive bias. According to her, stability may come from macroeconomic factors, particularly the ongoing conflict in the Middle East, which could discourage businesses from making investments. This, she suggests, might result in tighter credit conditions for corporate clients. The overall sentiment appears to be one of caution, with investors keenly watching for trends rather than immediate changes. Goldman Sachs has issued reports indicating that Santander's interest margin is expected to rise, primarily due to its operations in the UK, Spain, Brazil, Mexico, and the US. This growth is anticipated to offset increased credit risk in Argentina and worsening economic conditions there. The firm also warns that Santander’s capital ratio may deteriorate due to the effects of acquiring the British bank TSB from Sabadell, a transaction completed in May. This is the first quarter in which the acquisition will be included in the bank’s financial calculations. In contrast, Goldman Sachs has upgraded its revenue expectations for CaixaBank, projecting an interest margin of around €2.8 billion. This would allow the bank to close the fiscal year above €11 billion, aligning with its annual targets set in previous reports. The outlook for CaixaBank seems more optimistic, suggesting that while challenges persist, opportunities are emerging in certain markets. Overall, the Spanish banking sector is navigating a complex environment, balancing rising costs with evolving customer demands and global economic pressures.