Spanish Banks Report Strong Results in Q3 2023; but NII is Close to Peak and Further Uncertainty Expected

DBRS Morningstar released a commentary discussing large Spanish banks’ Q3 2023 earnings. Summary highlights from the commentary include:

-- Spanish banks reported solid results in the first nine months of 2023 driven by Net Interest Income (NII) growth coupled with stable cost of risk. In addition, Spanish banks’ asset quality continued to perform well without signs of deterioration, despite the recent interest rate rises.
-- Going forward, we expect Spanish banks’ profitability to remain strong. However, we see some headwinds in the medium term, including: i) NII reaching its peak in coming quarters; ii) some asset quality deterioration in 2024; and iii) new measures coming from the new government in Spain which might have a negative impact on Spanish banks’ profitability.

“Credit fundamentals remain strong, but there are some elements that warrant attention. Some asset quality deterioration is possible in 2024 and NII is close to its peak. In addition, potential measures from the new government could add further uncertainty” said Pablo Manzano, Vice President, Global Financial Institutions at DBRS Morningstar. “Despite these headwinds, we expect Spanish banks’ profitability to remain strong in 2024.”