Performing Loans Growth: 4.7% year-on-year increase. Customer Funds Growth: 7.1% year-on-year increase. Net Interest Income (NII) Growth: 5.5% year-on-year increase, excluding EUR36 million of extraordinary interests. Customer Margin Increase: 8 basis points. Non-Performing Assets (NPAs) Decrease: 16% reduction in the year. Coverage Ratio: Increased by 3 percentage points to 59%. Cost of Risk: 42 basis points, an improvement of 13 basis points over the year. Annual Net Profit: EUR1.8 billion. Return on Tangible Equity: 14.9%. Core Tier 1 Ratio: 13% after deducting 100 basis points for excess capital distribution. New Mortgage Production Increase: 53% compared to 2023. New Consumer Loans Growth: 21% increase in 2024. TSB Contribution to Group: EUR253 million, highest since acquisition. TSB Net Profit: 208 million pounds, a 19% increase versus 2023. Group NII Growth: 6.3% year-on-year. Fees Decline: 2% decrease year-on-year. Recurrent Costs Growth: 2.7% year-on-year. Cost-to-Income Ratio: 48.7% for the group, 43.5% ex-TSB. Credit Cost of Risk: 26 basis points for the year. NPL Ratio: Below 3%, lowest since 2009. Liquidity Coverage Ratio (LCR): 210% for the group. Net Stable Funding Ratio (NSFR): 142%. Shareholder Remuneration for 2024: EUR3.3 billion, equivalent to EUR0.61 per share.

Warning! GuruFocus has detected 5 Warning Sign with BNDSF.

Release Date: February 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Banco de Sabadell SA (BNDSF) reported a record annual net profit of EUR1.8 billion, reflecting a return on tangible equity of 14.9%. The bank's commercial activity showed strong momentum, with performing loans growing by 4.7% and customer funds by 7.1% year-on-year. Asset quality improved significantly, with total non-performing assets (NPAs) decreasing by 16% and the coverage ratio increasing to 59%. The bank's core tier 1 ratio stands at 13%, indicating a strong capital position after accounting for excess capital distribution. Banco de Sabadell SA (BNDSF) has been included in the Dow Jones Sustainability World Index, highlighting its commitment to sustainability.

Negative Points

Net interest income (NII) showed a decline of 1.2% in the quarter when excluding one-off items, due to downward repricing. Group fees declined by 2.1% year-on-year, impacted by lower current account maintenance fees. Recurrent costs grew by 2.7% year-on-year, slightly above the initial guidance. The bank's cost of risk, although improved, still stands at 42 basis points, indicating room for further reduction. The bank faces challenges in maintaining NII resilience in a lower interest rate environment, with expectations of a low single-digit decline in 2025.

Story Continues

Q & A Highlights

Q: Can you explain the dynamics of your loan yield in Spain and whether you have become more aggressive in pricing to grow your loan book? A: Sergio Palavecino Tome, CFO, explained that the evolution of loan yields is connected with the business mix and rates. The bank has seen growth across different products, including mortgages and SMEs. The fixed-rate products provide resilience, and the bank expects a loan yield of around 4% in 2025 despite rate headwinds.

Q: Could you provide more color on the EUR1.2 billion total remuneration for 2024-2025? A: Sergio Palavecino Tome, CFO, stated that the bank expects to maintain a 60% dividend payout, finance loan book growth, and generate additional capital. The bank will continue using significant risk transfer (SRT) transactions, which added 12 basis points to CET1 in 2024, and plans to use them more in 2025.

Q: What are your expectations for NII in Spain, and how sensitive is it to volume growth assumptions? A: Cesar Gonzalez-Bueno, CEO, mentioned that the sensitivity to volumes is linear, with a mid-single-digit growth expected. The bank has gained market share and expects to continue growing slightly above the average. The NII is expected to remain resilient, with customer spread above 300 basis points.

Q: Why are you not more positive on lending growth in the UK given the current rate environment? A: Cesar Gonzalez-Bueno, CEO, explained that the bank is conservative in its projections and does not have hard evidence to predict volume growth in the UK. If growth occurs, the bank will adapt accordingly.

Q: Are you working on reducing NII sensitivity further, and do you plan to increase the size of the ALCO book? A: Sergio Palavecino Tome, CFO, stated that the bank aims to reduce NII sensitivity, which is currently close to 2% for a 100 basis point change. The bank is using fixed-rate loans to extend asset duration and plans to grow the ALCO book as the balance sheet and deposits grow.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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