Bankinter and CaixaBank will gain market share at the expense of BBVA and Sabadell, according to Citi | Financial markets

Citi analysts met last week with the main agents of the Spanish financial system: the Bank of Spain, the Treasury, the AEB and even the consulting firm Álvarez & Marshall. The conclusion is that the overall sentiment is more optimistic than expected and that BBVA’s takeover bid for Sabadell is seen as a business opportunity for the sector as a whole. Banks that are not participating in the project could increase their market share, Citi said, and pointed to Bankinter and Caixabank as the best opportunities to increase their volumes. It also highlights the view at the Bank of Spain that greater banking concentration does not necessarily mean less competition.

According to Citi, BBVA’s takeover bid for Sabadell is being received positively by large enterprises. “Banks see increased consolidation in Spain as positive. Those who are not involved in the operation can gain market share. We believe that Bankinter and CaixaBank are best positioned to ensure volume growth,” explains the American bank.

Regarding the round of meetings with key representatives of the Spanish financial system, Citi adds that “Sentiment was more optimistic than expected, with most banks noting an acceleration in demand for mortgages and overall stability in deposit prices.”. Banks are facing another drop in interest rates, although they are not afraid of losing business. In short, rates will remain high for a long time, and after the June cut, there are serious doubts about the pace of subsequent cuts.

Citi notes that banks are now looking at mid-2024 intermediation margin growth of 5% and low-single-digit decline in 2025. And he notes that CaixaBank, which dominates the retail market, has stressed that new mortgage loan production is improving month-on-month, so there is a possibility that the flat loan growth forecast for this year will eventually turn into an increase. “Banks generally agree that customer spreads have peaked and that competition for loans is fierce. However, deposit trends remain favorable and, if sustained, could lead to improved net interest margin forecasts,” Citi adds. It is not for nothing that Spanish banks barely survived the increase in interest rates on deposits, therefore, given the prospect of a decrease in the price of money, the impact of this decrease on business margins will be more restrained.

On the capital side, Citi notes that banks will have to comply with a new requirement from the Bank of Spain, which has decided to activate a crisis buffer and require businesses to reserve 0.5% of their risk-weighted business assets in Spain in 2025. and another 0.5% expected in 2026. The US Bank echoes the Bank of Spain’s explanation that “it does not plan to respond unless banks increase their capital ratios.” So he didn’t intend to force banks to do this, but “he observed that in countries where banks have high capital ratios, the economy is more resilient in times of stress.”

The Bank of Spain also told Citi, the organization noted in the report, that greater banking concentration does not necessarily mean less competition and that it could help banks achieve economies of scale, as the bank has publicly acknowledged. However, the supervisor is also mindful that the concentration of the banking sector in Spain is relatively high compared to other major European economies, and that data shows that very reduced competition could impact financial stability.

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