Bank profitability is approaching its highest level

BarcelonaBanks operating in Spain, both domestic and foreign, are strengthening their solvency and reaching their highest levels of profitability, according to the latest data from the Bank of Spain.

According to historical data, the sector's profitability, at 14.43%, is close to its highest level since 2015, surpassed only by the figure recorded in the first quarter of 2021, when the integration of Bankia into CaixaBank boosted the average return for Spanish banks to 14.66%. At the beginning of 2021, banks' return on equity (ROE), which reflects the return on capital received by shareholders, returned to positive territory after experiencing negative rates as a result of the COVID-19 crisis.

At the same time, the total capital ratios of credit institutions operating in Spain increased in the first quarter, reflecting the consolidation of the sector's solvency. The common equity Tier 1 (CET1) ratio, which includes cash and equity, stood at 13.66%, while the Tier 1 ratio, which includes common equity and reserves and also includes preferred shares and hybrid instruments, is poised to reach 1%. Finally, the total capital ratio rose to 17.73%.

Record results

This trend has coincided with a period of record results for banks despite the European Central Bank's (ECB) interest rate cuts since June of last year. This trend has continued in the first half of this year. The six largest banks (Santander, BBVA, CaixaBank, Sabadell, Bankinter, and Unicaja) achieved combined profits of €17.086 billion, an 8.5% increase compared to the same period last year.

In terms of volume, Santander earned the most during that period, with €6.833 billion and a 13% increase. Sabadell, for which BBVA has a takeover bid starting in May 2024, led the percentage increase, with 23.3%, to €975 million. BBVA earned €5.447 billion through June, an increase of 9%; CaixaBank, €2.951 billion (+10.3%); Bankinter, €765.6 million (+7%), and Unicaja, €338 million (+15%).

Data from the Bank of Spain show that the loan-to-deposit ratio increased in the first quarter of this year compared to the previous quarter, standing at 95.53%. However, this represented a reduction of 1.41 percentage points from the 96.94% recorded in the first three months of 2024. In terms of liquidity, the liquidity coverage ratio of all banks decreased to 171.33% in the first quarter compared to Q17. This decrease in the ratio was due to both a 1.98% decrease in the liquidity buffer (numerator) and a 2.22% increase in the net liquidity outflow (denominator).

The ratio of non-performing loans excluding cash balances at central banks and other overnight deposits with credit institutions decreased to 2.86% in the first quarter of 2025, compared to 2.91% in the previous quarter. The ratio of loans under special supervision (phase 2) to total loans decreased, standing at 6.06% in the first quarter (compared to 6.29% in the previous quarter). It also fell compared to the same quarter of the previous year, when it stood at 6.81%.