The vertiginous escalation of interest rates in the Eurozone has been the manna that the banks had been carrying for a whole decade and that has finally arrived. Thanks to this, the large Spanish entities have shot up their margins to levels not seen since before the Lehman Brothers explosion and this has allowed them to earn almost 50% more during the first six months of the year.. Specifically, the joint profit of Banco Santander, BBVA, CaixaBank, Sabadell, Bankinter and Unicaja reached 5,300 million euros from January to June, although out of the total profits of the six entities it represents less than half, taking into account other markets like Mexico or Brazil.

Beyond the rates, the leading swords of the sector have insisted in each appearance this week on the strength that the country's economy is showing, with a fall in the demand for credit (as is logical given higher financing costs), but without a notable or worrying rise in delinquency. In fact, in some cases, such as Banco Santander or CaixaBank, which brings defaults to a minimum of 15 years, even falling in the semester.

If these results did not include the tax paid by the sector in the first quarter, for a total of 1,120 million euros, the joint profit of the six listed entities would have been about 6,400 million, 80% more than the result of 2022.

In world terms, listed banks obtained a net result of close to 12,400 million euros, 20% more if compared to the first six months of 2022, when the first rate increase had not yet occurred, of the nine that the ECB has carried out since just one month later, since it began the race against inflation in July of last year.

GROWTH

The two largest banks in this country are the ones that have picked up speed at the start of the year. The entity chaired by Ana Botín achieved a profit in Spain of 1,132 million euros, which represents 74% more and was the clear driver of the group's result. So much so that Spain overtook Brazil and once again became the first market for the group by benefits. It must be taken into account that globally its profit grew by 7% due to the fall of the Brazilian market mainly. It amounted to 5,241 million euros.

The rise in the price of money in the Eurozone was behind the fact that the interest margin (which is the difference between what a bank pays for its deposits and what it charges for borrowed money) in Spain shot up 57%, up to 3,161 million euros compared to 2,000 million in the first part of 2022. It also added 362,000 customers in the last six months in our country.

The profit of BBVA in Spain, the second market for the entity behind Mexico, increased by almost 54% until June, with 1,231 million euros. Globally, the bank led by Onur Genç earned 3,878 million, 31% more, and in which the Mexican economy represented slightly more than half. The interest margin in our country was almost 45% higher despite a slight drop in commissions.

CaixaBank, which controls a quarter of the national loan market, registers the highest profit of all entities. The total profit of the group, which means including its Portuguese subsidiary BPI to a large extent, increased somewhat less, 36%, to earn 2,137 million.

The remaining 1,000 million profits are shared between Sabadell, Bankinter and Unicaja. Of these, only Unicaja has seen its profit fall in the semester, 13% specifically, and the entity attributes it to the payment of the tax to the sector that it paid in full before March, of 63.8 million.

stress test

Yesterday the EBA (European Banking Authority) published the so-called stress tests for the sector in which Spanish banks emerged unscathed once again. In a scenario of maximum stress in the economy, Sabadell and Unicaja are the ones that would destroy the most capital, close to 400 basis points, and even so their levels of first quality capital would fall to 8.8% and 9.7%, respectively.

The one that comes out best in the photo, once again, is Bankinter, for whom the worst crisis scenario would still allow it to continue covering the cost of capital, which historically has been set at over 10%.. Next to the orange entity are Santander and Kutxabank as the next banks that would best respond to a stress scenario.

The banking sector has been in the spotlight of the current acting government for some time, which even approved the so-called banking tax that, for United We Can, has fallen short considering the results of the main entities. This Friday it was the turn of CaixaBank, which has earned 2,137 million euros up to June, 35.8% more.

“We will have to think about whether we want to penalize the banks, if there is an underlying economic reason for it to be like this,” he said at the press conference to present the results for the first half of 2023, held in Valencia. In a scenario of political uncertainty after the result of 23-J, and with the debate on whether to make the bank tax permanent, Gortázar has been very clear in his criticism of the high tax burden that banks bear.

“It makes no sense to tax banking more than other activities”. Bearing in mind that the type of companies is 25%, Gortázar wondered if “banks should contribute 40% while the rest 25%”. “It is not fair, because it is not true that we earn a lot of money,” he insisted. As he has been doing in his last appearances, he has once again denied that the benefits obtained are “extremely high”. “The results have improved because they come from very low levels,” according to Gortázar, who has referred to the fact that the bank's profitability is well below that of other sectors. Of the Ibex 35 they are in position 25, as he has pointed out, despite the growth that banks have had as a result of the sustained increase in interest rates.

Even so, remuneration for deposits remains unattractive. The sector continues to be reluctant to remunerate savings, despite the fact that the pressure to do so has even come from the Ministry of Economic Affairs, through the mouth of Nadia Calviño. However, Gortázar has defended that “gradually the remuneration of deposits is gaining strength and it is normal for it to be readjusted”. In his opinion, “this trend will continue”, although CaixaBank continues to send the message that “the way to save in the long term is not the bank deposit”.

And after the European Central Bank (ECB) undertook the ninth rate hike, Gortázar has stated that it should not be ruled out that there will be another one “just around the turn of summer”. CaixaBank takes for granted a “stop” in the signing of new mortgage loans, since it registered a 21.5% drop in new mortgage production in the first half of the year, to record 4,654 million. In this regard, Gortázar considered “logical to think that there will continue to be significant levels of decline”, even higher, between now and the end of the year..

In parallel, 55% of the entity's mortgage portfolio has already been repriced with the Euribor and the average rate increase ranges between 90 and 100 euros per month. Far, therefore, from the 200 or 300 euros monthly increase that is said in many cases, as pointed out by Gortázar, who considers that there is no “massive problem” and “a massive solution” is not needed.. It has advanced that the Euribor in December will be below 4%, with which “the problem will go less, not more”. In fact, he has pointed out that from the middle of next year it is estimated that mortgages will become cheaper, which will be “a good sign”.

Regarding the political scenario, the CEO of CaixaBank has opined that the uncertainty about the formation of the new government is not good news. However, he wanted to downplay its possible impact on the economy: “We have experience in 2016 and 2019 of long processes of uncertainty and repetition of elections, and in the two years there were economic growth rates higher than those of the European Union, with good evolution of the public deficit and the risk premium in Spain”. Therefore, he has asked to “normalize a situation that we may not like, because we must trust in the strength of the economy”.

However, Gortázar has admitted that the purchase of debt by the ECB has helped Spain in the past, so now “we have to do our homework”. And the duties are those of the future Executive: redirect itself along a “sustainable path in terms of deficit and public debt”. With the stability regulations just around the corner, “it is better to anticipate and take advantage of the good economic moment in Spain to put a little order in the public accounts”.

Regarding the bank's results, during the first half of 2023, 'core' revenues grew by 31.3% year-on-year, to 7,110 million euros, and the entity has highlighted the increase in interest margin, which was 4,624 million, 55.2% more. It also recorded growth in the result of the insurance service (+18.5%) and in the income from bancassurance investees (+59.2%), which offset the 4.2% drop in commissions.

Specifically, recurring bank commissions show a year-on-year reduction of 7.6%, “impacted, fundamentally, by the suppression of custody commissions for deposits from large companies”. The CEO explained that the “solid result is a consequence of the good progress of the commercial activity, as well as the prudent management of credit risk”. In addition, CaixaBank has announced its intention to carry out a new share repurchase for a value of 500 million euros.

BBVA achieved a profit of 3,878 million euros during the first six months of the year, which represents an increase of 31% compared to the previous year. This figure would exceed 4,100 million euros if the temporary tax paid to the State in the first quarter in full and which amounted to 225 million for the business in Spain is not deducted from it.. From April to June alone, profits amounted to 2,032 million euros, with an interest margin of 5,768 million, 25% higher than a year ago and 100 million above the quarter of the year.

Group revenue reached 14,148 million euros, with growth close to 24%. Specifically, the interest margin (which is the difference between what the bank charges for the money lent and what it pays to its customers for deposits) shot up 33.6%, up to 11,410 million euros, in line with what has been seen in the rest of the entities that have been presenting their accounts over the last week. The commissions in his case grew by 9.4%, reaching 2,909 million euros.

On the other hand, operating expenses increased at the group level at a rate of 21.6% due largely to the inflation rates observed in the countries where the group is present, such as Turkey (where it is close to 40% ) or Argentina (at 116% at the end of June). Likewise, BBVA has carried out salary increases “to compensate for the loss of purchasing power of the workforce”.

SPAIN AND MEXICO

During the first half of the year, the entity chaired by Carlos Torres managed to grow in its main markets, thanks to the impact of the rise in interest rates on its business in Spain and the increase in spreads in Mexico, which remain at levels of 11.25%. since the last rise carried out by the Central Bank of the country last March, and which are the highest since the financial crisis. Here in the Eurozone, the European Central Bank (ECB) increased the reference rates again this Thursday to 4.25%.

Against this backdrop, BBVA's banking business in Spain increased its profit by 53.6% to 1,231 million euros, and represents a quarter of the group's total result, with an interest margin that was almost 45%. higher despite a slight drop in commissions. Mexico continues to be its first market, with 53% of the profit. From January to June, he earned 30.1% there, up to earning 2,614 million euros.

As regards the national business, the loan portfolio remained stable at the end of 2022 and closed June at 173,944 million euros and there was a 3% drop in customer deposits, to 214,276 million. euro. The default rate rises slightly in the semester to 4%. The entity considers that the fall in the mortgage portfolio, of 1.1%, and in loans to large companies, which also fell by 3%, has been offset by credit to the public sector and to consumption, in addition to the greater demand for financing from medium-sized companies.

In the case of Mexico, the entity registered an increase in the interest margin of 26.6% from January to June thanks to the “dynamism”, according to its report, of the country. Net commissions increased by 21% due to the higher volume of customer transactions, mainly due to the use of credit cards and the management of investment funds.

Turkey, where BBVA owns 86% of the capital of Garanti, generated an attributable result of 525 million euros during the first half of 2023 within a specific accounting for hyperinflation that has been dragging on for several semesters.

The entity once again increased its profitability in the semester as it took its ROTE (return on tangible capital, for its acronym in English) to levels of 16.9%, while the ROE also climbed another 180 basis points on the closing of 2022 up to 16.2%.

Non-performing loans increased by 7 basis points, up to levels of 3.4% at the end of June. At the group level, the bank recognizes a 3.9% increase in the doubtful balance between April and June 2023, due to greater delinquencies in individual portfolios.

The Tier 1 capital ratio, known in the sector as CET1 fully loaded, was close to 13% at the end of the semester, above the target set by the entity for a range of 11.5% to 12%..

1,000 million to buy shares

BBVA has become the clearest example in the national banking sector in terms of shareholder remuneration. The entity not only distributes half of its profits among investors in a dividend entirely in cash (unlike Banco Santander, which only gives 25% in cash) but also has set a new share repurchase as its objective, the third in three years and that would bring the total amount allocated to own shares to over 4,500 million euros, at the head of the big Europeans.

Previously, BBVA had completed a share buyback program for 3,160 million euros and last year announced a timid program of 422 million more

“A poorly designed extraordinary tax that has had a significant impact on our results and cash generation”.

Given that the new government rate only taxes income in Spain, the impact of the new tax affects Cepsa to a greater extent than other of its competitors (29% compared to last year's profits), since the The country is highly concentrated in energy, unlike other of its peers, whose turnover is more geographically diversified. Between January and June, the impact of the new tax for Cepsa has been 320 million.

In a context of normalization of energy prices after the escalation of the previous year, the company in the hands of the French fund Carlyle and the state fund of Abu Dhabi, Mubadala, has seen the margins of its refining activity fall, something that has compensated partly thanks to lower energy costs. “The refining margins are still good, although lower than those of the first half of 2022,” the group has qualified.

In this context, adjusted gross operating profit (adjusted ebitda) fell by 57% to stand at 742 million compared to 1,742 million in the first half of 2022. The company attributes this evolution to the lower volumes of the Exploration and Production business after the sale to TotalEnergies of its Upstream business in the Emirates, one of its main oil enclaves in the Persian Gulf for up to 1,500 million. Also to the drop in crude oil prices.

Wetselaar has emphasized that the aforementioned tax coup harms the company “in a context in which Cepsa is carrying out a profound transformation, going from being a traditional oil and gas company to a company at the forefront of the European energy transition”.

Thus, the company has highlighted that sustainable investments represented 39% of a total of 276 million euros in the first half of the year (compared to 218 million in the first six months of 2022), within the framework of the company's strategic plan. company, Cepsa Positive Motion.