Spanish banks’ NPLs remain at 3.50% in July, despite stock of credit falling by -3.09% year-on-year; BBVA, Sabadell and Caixabank, top picks

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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.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.