Banco Sabadell Reports Strong Growth and Profitability in Q3 2024

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Banco Sabadell Reports Strong Growth and Profitability in Q3 2024

Banco Sabadell delivered strong performance in the third quarter of 2024. CEO César González-Bueno announced a net profit of €1.3 billion for the first nine months and a record quarterly net profit exceeding €500 million during the latest earnings call. The bank saw growth in performing loans on an annual basis and an increase in mortgage originations in Spain. Banco Sabadell's subsidiary TSB made a significant contribution to the group’s profits.

Looking ahead, the bank is focusing on growth and profitability with plans for shareholder returns and stable risk cost.

Key Points:

  • Banco Sabadell's net profit reached €1.3 billion in the first nine months of 2024, with a record quarterly net profit exceeding €500 million.
  • Performing loans grew by 2% year-on-year, while mortgage originations in Spain saw an annual increase of 82%.
  • Net Interest Income (NII) experienced a slight decline of 0.7% quarter-on-quarter, while the Net Interest Margin (NIM) increased.
  • Non-Performing Assets (NPAs) decreased by 3% quarter-on-quarter, indicating improved asset quality.
  • The Common Equity Tier 1 (CET1) ratio increased to 13.8%, and the bank anticipates around €1.6 billion in net profit for 2025.
  • TSB's return on tangible equity is expected to reach double-digit figures by 2025, with an estimated total cost reduction of 3% for 2024 and 2025.

Company Outlook:

  • Banco Sabadell expects mid-single-digit growth in NII and a total risk cost of approximately 45 basis points in 2024.
  • The bank forecasts a return on tangible equity of over 13% in 2025.
  • A total shareholder return of €2.9 billion is planned for 2024 and 2025.
  • Potential opportunistic issuances in capital instruments exceeding €5 billion.

Negative Aspects:

  • Core results fell by 3% quarter-on-quarter due to low NII and inflation-related cost increases.
  • A one-time expense of approximately €14 million was reported due to updated collective bargaining agreements and personnel costs in Spain.
  • A slight decline in net interest income (NII) is expected in the UK in the 4th quarter of 2024.

Positive Aspects:

  • Improvement in asset quality with a 3% reduction in NPAs and a total risk cost of 44 basis points.
  • TSB’s NII grew by 3.5%, contributing to the group’s NII resilience.
  • Liquid assets rose to €46 billion, leading to a loan-to-deposit ratio of 95%.

Underperformances:

  • The bank experienced a slight decline in net interest income (NII) on a quarter-on-quarter basis.
  • Total costs increased by 2.7% quarter-on-quarter but remained consistent with annual guidance.

Q&A Highlights:

  • The banking tax is included in the 2025 forecasts but is subject to change.
  • It is anticipated that deposit costs in Spain will remain stable or decrease, coinciding with a shift towards term deposits.
  • TSB's restructuring strategy aims for a 3% reduction in net costs for 2024 and 2025, driven by a digital-first approach and automation.
  • Securitizations are part of the capital strategy, with a €1 billion deal linked to corporate loans in Miami expected to close by the end of the year.

Banco Sabadell (BME: SAB) has demonstrated resilience and strategic growth in its third-quarter performance, maintaining its position for sustained success in the coming year. The bank’s focus on profitability, asset quality, and cost management is reflected in its solid financial results and optimistic outlook for 2025. Investors and stakeholders can expect further updates and detailed guidance in January 2024.