Banco Santander believes that the profitability of deposits will not rise strongly until 2024

Banco Santander believes that it will not be until mid-2024 when banks begin to offer attractive remuneration for their deposits. The entity plans to continue increasing the profitability of its loans (which closed in the first semester at 3.8%) while it does not yet see pressure to significantly increase deposits for the simple reason that the sector in Spain does not need go to the market in search of liquidity. At the end of June, Santander had close to 300,000 million euros of deposits from its clients, slightly more than 25% of what the loan portfolio represents.

During the conference with analysts held yesterday by Banco Santander after the presentation of its semi-annual results, its top managers assured that they are waiting to see “a significant revaluation of the loan portfolio in the first half of next year”, even considering a Euribor at current levels -due to the lag of between 12 and 24 months it takes to transfer the rise in interest rates to mortgage payments, which are reviewed in countries such as Spain, generally once a year-, at while acknowledging, once again, “we are not seeing any pressure to increase the remuneration of retail deposits (…) which means that, probably, the spike in interest margins [which is the difference between what the sector charges for the loans and what they have to pay clients for their deposits] will not happen until well into 2024,” in the words of CFO José García Cantera. It must be borne in mind that Santander, like other banks, does offer higher returns to both companies and private banking customers.

In figures, the cost of deposits for Santander Spain stands at levels of 0.72%, compared to a profitability that the bank manages to extract from its credit portfolio of 3.8%, and which continues to increase from 2.46 % end of 2022. In Spain, at the end of May, the weighted average rate on deposits was 1.65%, slightly more than double, and in the Eurozone it reached 2.44%, according to data published by the European Central Bank (ECB).. “We cannot say that we are not remunerating savings. There is a lot of competition in Spain (…) At Openbank [Santander's digital subsidiary in Spain] we are paying 3.07% [for this type of product]”, Grisi asserted to questions from journalists.

The entity justifies the low remuneration for savings because, on the other side of the scale, the prices it offers for its mortgages and consumer credit are also much more adjusted than in other European countries. “There are millions of people who benefit from better conditions in Spain in terms of the cost of credit. We are offering loans that represent a third of the cost of other countries such as Germany. It should not be seen only from one side,” said Héctor Grisi, CEO of the group this Wednesday. The example given by the entity is that while the bank lends money in Spain with a differential in its favor of about 30-40 basis points over the Spanish public debt, in the German country this differential reaches 160 points over the yield of the German Bund, in returns yesterday of 2.4%. This assumes loans on 4% interest.

The good performance of the Spanish economy, added to the evolution of interest rates, once again made Spain the group's leading market in terms of profit during the first half, ahead of Brazil, with 1,132 million euros, practically double that of the last year. Its interest margin shot up almost 57% to 3,161 million euros.

MORTGAGE AMORTIZATION

The Bank of Spain has verified how national banks continue to toughen the conditions for granting credit as a preventive measure against a possible rise in delinquency. The truth is that nobody escapes the drop in credit demand, given higher financing costs, and neither does Banco Santander, which has seen how the mortgage portfolio for individuals has decreased by around 1,700 million euros in recent years. twelve months, which represents about 3% of the total.

“In July 2022, Spanish household mortgages amounted to 59,500 million euros and in June 2023 they are 57,800 million, falling between 200 and 300 million per month and a large part of this drop is explained exclusively by amortization,” Cantera said. , which also “improves” the credit quality of the portfolio.

The bank ensures that mortgage repayments, total or partial, have multiplied by five at the start of the year compared to previous years, precisely because its clients are seeking to avoid the increase in installments due to the unprecedented rise in rates of interest in the euro zone. This Thursday everything indicates that the European Central Bank will undertake the tenth consecutive rise in rates in the Eurozone, until the refinancing rate reaches all-time highs of 4.25% and the deposit rate up to 3.75%.