27 Oct, 2023
CaixaBank upgrades NII guidance as deposit betas remain subdued
CaixaBank SA expects income from lending in 2024 to match the more than €10 billion it now forecasts to make in 2023 as lower-than-expected deposit costs boost margins.
Analysts had forecast CaixaBank to make €9.53 billion in net interest income (NII) in 2023 and €9.4 billion in 2024, according to the S&P Global Market Intelligence mean consensus estimate.
Spain's largest domestic lender grew NII — the difference between interest revenues and interest expenses — more than 12% quarter over quarter to €2.74 billion in the three months to the end of September. The result, which beat analysts estimates by 8.8%, has continued a strong run of NII growth since the third quarter of 2022, when the European Central Bank began raising interest rates.
"We are making a significant change to the guidance we made based on our experience [of deposit costs]," CEO Gonzalo Gortázar said during a third-quarter earnings call. "We have a higher confidence, a higher degree of ability, to give a guidance [for 2024] that is obviously better in terms of impact on profitability."
Beta blocker
CaixaBank's last forecast for NII in 2023, made in July, was more than €9.25 billion. The bank had expected deposits to reprice more quickly as interest rates rose, which would reduce lending margins and NII. CaixaBank's deposit beta — the portion of short-term central bank rates passed on to depositors — is much lower in the fourth quarter of 2023 than it had forecast, Gortázar said.
"We were expecting betas to end the year circa 20%, and we are now expecting them to be clearly well below that," CFO Javier Pano said. "And into 2024, we expect the average betas to be in mid-20s."
Ample access to liquidity has allowed CaixaBank to avoid hiking rates on deposits to attract savers, said Pano.
"Liquidity conditions in general are better than our initial expectations," Pano said. "Not just for us, but also for the [banking] system."
The strong NII performance helped CaixaBank generate €1.52 billion in the quarter, up 18.8% on three months earlier and almost 70% above the same period last year.
CaixaBank is among the Spanish banks enjoying a surge in revenues and profits from higher interest rates. The relatively large proportion of variable-rate loans on Spanish lenders' balance sheets means higher rates are passed on to their borrowers quicker. The banks' historically strong liquidity positions are also limiting competition for deposits, which would push up the rates lenders' offer to savers and reduce NII.