Spain
Highlights
- Seasonal drop in lending
- Significant improvement in net interest income
- Recording of the temporary tax on credit institutions for the financial year 2023
- Cost of risk remains at low levels, in line with the end of 2022
Business activity (1)
(VARIATION COMPARED TO 31-12-22)
(1) Excluding repos.
Net interest income/AVERAGE TOTAL ASSETS
(Percentage)
Operating income (Millions of euros)
Net attributable profit (LOSS) (Millions of euros)
Financial statements and relevant business indicators (Millions of euros and percentage)
| Income statement | 1Q23 | ∆% | 1Q22 (1) |
|---|---|---|---|
| Net interest income | 1,183 | 38.2 | 856 |
| Net fees and commissions | 536 | — | 536 |
| Net trading income | 120 | (36.9) | 190 |
| Other operating income and expenses | (112) | n.s. | 73 |
| Of which: Insurance activities | 99 | 10.2 | 90 |
| Gross income | 1,726 | 4.3 | 1,655 |
| Operating expenses | (753) | 6.2 | (709) |
| Personnel expenses | (414) | 8.2 | (383) |
| Other administrative expenses | (245) | 10.3 | (222) |
| Depreciation | (94) | (9.8) | (105) |
| Operating income | 974 | 2.9 | 946 |
| Impairment on financial assets not measured at fair value through profit or loss | (114) | 27.0 | (89) |
| Provisions or reversal of provisions and other results | (9) | (55.0) | (19) |
| Profit (loss) before tax | 851 | 1.7 | 837 |
| Income tax | (310) | 30.1 | (238) |
| Profit (loss) for the period | 541 | (9.6) | 599 |
| Non-controlling interests | (1) | (33,3) | (1) |
| Net attributable profit (loss) | 541 | (9.5) | 598 |
| Balance sheets | 31-03-23 | ∆% | 31-12-22 (1) |
|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 50,952 | 3.6 | 49,185 |
| Financial assets designated at fair value | 137,432 | 8.7 | 126,413 |
| Of which: Loans and advances | 47,764 | 13.9 | 41,926 |
| Financial assets at amortized cost | 207,349 | 1.4 | 204,528 |
| Of which: Loans and advances to customers | 172,085 | (1.1) | 173,971 |
| Inter-area positions | 37,955 | (2.5) | 38,924 |
| Tangible assets | 2,957 | (1.1) | 2,990 |
| Other assets | 5,075 | (0.0) | 5,076 |
| Total assets/liabilities and equity | 441,720 | 3.4 | 427,116 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 96,927 | 14.5 | 84,619 |
| Deposits from central banks and credit institutions | 60,305 | 16.6 | 51,702 |
| Deposits from customers | 214,476 | (3.0) | 221,019 |
| Debt certificates | 40,898 | 0.3 | 40,782 |
| Inter-area positions | — | — | — |
| Other liabilities | 14,777 | (6.9) | 15,870 |
| Regulatory capital allocated | 14,337 | 9.2 | 13,124 |
| Relevant business indicators | 31-03-23 | ∆% | 31-12-22 |
|---|---|---|---|
| Performing loans and advances to customers under management(2) | 169,215 | (1.2) | 171,209 |
| Non-performing loans | 7,668 | (2.8) | 7,891 |
| Customer deposits under management (2) | 213,311 | (3.1) | 220,140 |
| Off-balance sheet funds (3) | 90,577 | 4.4 | 86,759 |
| Risk-weighted assets | 116,550 | 1.8 | 114,474 |
| Efficiency ratio (%) | 43.6 | 47.5 | |
| NPL ratio (%) | 3.9 | 3.9 | |
| NPL coverage ratio (%) | 59 | 61 | |
| Cost of risk (%) | 0.27 | 0.28 |
(1) Restated balances according to IFRS17 - Insurance contracts.
(2) Excluding repos.
(3) Includes mutual funds, customer portfolios and pension funds.
Macro and industry trends
After growing by 5.5% in 2022, GDP will increase by around 1.6% in 2023 according to BBVA Research, a forecast two tenths of a percentage point higher than the previous forecast, mainly due to the significant reduction in energy prices and the dynamism of economic activity in recent months. Growth is also expected to moderate further ahead, in line with the outlook of tighter monetary conditions and a slowdown in global and European growth. Annual inflation, which closed 2022 at 5.7%, moderated to 3.3% in March, helped by lower energy prices and favorable base effects. It is expected to average around 3.9% in 2023, above the ECB's 2% target.
As for the banking sector, based on data as of January 2023, the volume of credit to the private sector remained stable, with a slight decline of 0.6% year-on-year. At the end of December 2022 (latest data available by credit portfolios), lending to households remains stable while lending to companies fell by 1.1% in the year. Customer deposits grew by 0.6% year-on-year with data as of the end of January 2023, thanks to the growth in demand deposits, as time deposits continued their downward trend, albeit at a slower pace (-4.5% year-on-year). The NPL ratio continued to fall to 3.56% in January 2023, 77 basis points lower than in January 2022. It should also be noted that the system maintains comfortable solvency and liquidity levels.
Activity
The most relevant aspects related to the area's activity during the first quarter of 2023 were:
- Lending activity decreased (-1.2%), as a result of mortgage payoffs by some customers, which were not offset by the growth in the loans to SMEs (+0.7%) and the public sector (+3.5%).
- In terms of credit quality, the NPL ratio showed a minor decrease of 5 basis points compared to the end of December 2022 and stood at 3.9%, mainly due to the volume of write-offs made during the quarter. The coverage ratio also decreased during the quarter, to 59%, due to the aforementioned shift to write-offs.
- Total customer funds recorded a reduction of 1.0%, which is explained by the lower balances of customer deposits under management, which in December 2022 included extraordinary payments, and customer contributions to off-balance sheet funds. Thus, the variation in demand deposits was -3.8% and +3.3% in the case of time deposits, with the latter having a limited weight in total customer deposits (10.7% at the end of March 2023). Off-balance sheet funds (mutual and pension funds) increased by 4.4%, favored by net contributions in the quarter, despite the turbulence in the markets towards the end of the quarter.
Results
Spain generated a net attributable profit of €541m in the first quarter of the year 2023, 9.5% lower than in the same period of the previous year, due to the recording, on January 1, 2023, of the temporary tax on credit institutions and financial credit institutions for €225m, included in the other operating income and expenses line of the income statement. In addition, the dynamism of the net interest income stands out.
The most notable aspects of the year-on-year changes in the area's income statement at the end of March 2023 were:
- Net interest income, with a significant year-on-year growth of 38.2%, continued to benefit from the improvement in customer spreads, in a context of interest rate hikes.
- Net fees and commissions were in line with the previous year, as a result of a lower contribution from asset management and banking services fees, offset by higher income from wholesale operations.
- Decrease in the year-on-year NTI contribution (-36.9%), with a lower contribution from the ALCO portfolios, partially offset by the good performance of Global Markets.
- Other operating income and expenses compared negatively with the previous year, due to the €225m recorded in this line for the temporary tax on credit institutions and financial credit institutions for the year 2023. For its part, the performance of the insurance business was higher than in the previous year (+10.2%).
- Growth in operating expenses (+6.2%), both in personnel expenses due to higher fixed remuneration, with additional measures that improve those of the sectoral wage increase agreement, and in general expenses, as a result of inflation, especially higher IT expenses.
- For its part, the gross income increased by 4.3%, below the growth in expenses. This increase is affected by the recording of the temporary tax on credit institutions and financial credit establishments. Thus, the efficiency ratio stood at 43.6%.
- Impairment on financial assets was 27.0% higher than in the first quarter of 2022, due to higher provisions needs in the loan portfolio, as well as the recording of some non-recurring positive items in the first quarter of 2022. As a result of the above, the cumulative cost of risk at the end of March 2023 stood at 0.27%, below the 0.28% registered at the end of December 2022.
- Provisions and other results closed the first quarter of 2023 at €-9m, which compares favorably with the previous year, thanks, among other factors, to lower provisions for legal contingencies and higher release of provisions for risks and contingent commitments.