Spain's CaixaBank raises lending income outlook for 2023 to €9.25B

Spain's largest domestic lender CaixaBank SA expects its lending income for 2023 to exceed €9.25 billion, higher than previously expected.

Higher interest rates and lower deposit costs than forecast are driving growth in net interest income (NII) and boosting profits. NII is the difference between interest revenues and interest expenses.

CaixaBank expects the favorable conditions to continue in the coming months.

"On the back of that, clearly, we have delivered a really strong second quarter and we are going to be over our initial [NII] guidance," CFO Javier Pano said during a second-quarter earnings call.

CaixaBank generated €2.44 billion in net interest income in the second quarter. NII rose 60.7% year on year, helping the bank to increase profits by almost 48% to €1.28 billion.

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 borrowers more quickly. 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.

Pano said the extent to which CaixaBank's NII exceeds €9.25 billion will depend on the evolution of the bank's deposit beta — the portion of short-term central bank rates passed on to depositors.

"The deposit beta is evolving more slowly than initially expected," Pano added.

CaixaBank estimates the deposit beta to be about 20% by the end of 2023 and in the mid-30s by the end of 2024.

"But it's not clear to us if this path is going to be linear or to what extent at some point it will accelerate," Pano said.

CaixaBank expects to generate approximately €9 billion in NII in 2024.

"If we outperform in terms of deposit betas [and if] those rate cuts that are now priced in by the market finally do not happen, then that will result in upside," Pano said.