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2 Mar, 2023
Spanish banks turn attention to deposits as interest expenses surge in Q4
Spain's largest lenders expect a significant increase in the cost of deposits at their domestic businesses in 2023 after a sharp increase in the last quarter of 2022.
The country's six largest banks — CaixaBank SA, Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Banco de Sabadell SA, Bankinter SA and Unicaja Banco SA — are forecasting deposit betas in 2023 ranging from the high teens to about 25%, according to comments made by executives during recent full-year 2022 earnings calls. Deposit betas are the percentage of changes in market interest rates that banks pass on to their customers.
The pace and extent of deposit betas will be crucial in determining the amount of net interest income — the difference between interest revenues and interest expenses — lenders earn from higher interest rates. Spanish banks are currently experiencing a surge in net interest income, the largest portion of Spanish banks' revenues, as higher interest rates are passed on to borrowers.
"We do expect, across the year, more attention to the remuneration of deposits," Bankinter CFO Jacobo Diaz Garcia said during the bank's full-year 2022 earnings call.
Deposit costs
Four of the banks — CaixaBank, Santander, Bankinter and Unicaja — reported a surge in domestic deposit costs, or interest expenses, in the fourth quarter of 2022, according to company filings data. The banks' aggregate domestic interest expenses rose by more than two-thirds quarter on quarter to €1.57 billion from €933 million in the three months to the end of September 2022, the data shows. BBVA and Sabadell did not report domestic interest expenses.
Santander saw the largest increase in domestic interest expenses in the three months to the end of December 2022 at more than 156% quarter on quarter to €736 million, company filings data shows.
The surge in domestic interest expenses at Santander coincided with the bank's outperformance in domestic deposit growth compared with its five largest peers. Santander's domestic deposits grew by almost 5% quarter on quarter and more than 15% year on year to €334.6 billion, company filings data shows. Aggregate domestic deposit growth for Spain's six largest banks stood at 0.65% quarter on quarter and 3.14% year on year in the three months to the end of December, the data shows.
Santander's domestic deposit growth came as the bank added 700,000 new customers in Spain in 2022, chair Ana Botín said.
"[Santander] Spain is growing the number of customers, Spain is gaining market share in deposits," said Botín.
'Watching closely'
Still, some of Santander's competitors have yet to see a substantial enough increase in competition for deposits to warrant a significant increase in deposit rates.
"The pressure [to increase deposit rates] is not there at the moment," BBVA CEO Onur Genç said. "We are going to be watching competition very closely."
Liquidity in the European banking system and particularly Spanish banks' loan-to-deposit ratios will be crucial in determining the pace and extent of deposit betas, CaixaBank CEO Gonzalo Gortázar said.
Spain's six largest banks had an average loan-to-deposit ratio in their domestic business of about 88.3%
"In previous circumstances when there was a tremendous fight for deposits, loan to deposits were almost double between 150% and 200% in most of the Spanish banks," Sabadell CEO César González-Bueno said.
