Bankinter : According to the latest data published by the Bank of Spain, the preliminary figure for non-performing loans remained at 3.50% in July, similar to June’s figure and compared to 3.85% in July last year, despite the adverse denominator effect of the fall in the stock of credit (-0.92% m/m; -3.09% year-on-year); BBVA, Sabadell and Caixabank, top picks. 26 September 2023
Analysis team’s view: Most importantly, the balance of non-performing loans fell to €41,774m in July (-0.95% m/m; -12.8% year-on-year), the lowest level in five months. This is good news because: (1) there are no signs of deterioration in credit quality despite the rate hikes and inflation. It should be recalled that the ECB has raised its benchmark interest rates +325 bp to 4.0% (deposit)/4.50% (credit) in the last 12 months and (2) the evolution of the volume of NPLs invites us to think about a low cost of risk/CoR in 2H 2023. Indeed, loan-loss provisions recorded a fall of -9.8% year-on-year in July (-1.4% m/m).
Conclusion: The strategic bet on Spanish banks is reiterated because: (1) they are enjoying a good momentum in earnings (NAB: +34.5% in July), (2) the sector’s fundamentals are solid (excess liquidity and solvency) and (3) the assessment multiples are attractive. Favourites, in this order, are: BBVA (+31.2% in 2023/YTD), Sabadell (+22.6% YTD) and Caixabank (-1.4% YTD). These three entities have a significant weighting in our model equity portfolios.