Spain's largest banks expect income from lending in the country to grow at an even quicker pace in the second half of 2022 and beyond following faster-than-expected growth in the first six months of the year.

CaixaBank SA, Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Banco de Sabadell SA, Bankinter SA and Unicaja Banco SA all enjoyed an increase in net interest income, or NII ­— the difference between interest revenues and interest expenses — from their domestic businesses in the second quarter compared with the previous three-month period, S&P Global Market Intelligence data and company filings show. The banks recorded an aggregate quarter-on-quarter NII growth of 3.5% in the period. The revenue boost came primarily from strong lending growth, with rising interest rates only beginning to feed through to NII in the quarter, the banks said.

The lenders can expect an even larger contribution to NII following the European Central Bank's decision to raise interest rates by a further 75 basis points on Sept. 8. The increase was the largest ever made by the central bank as it struggles to bring inflation under control.

"We have an environment in which NII should increase in the coming quarters, benefiting mainly from interest rate hikes," Santander CEO Jose Antonio Álvarez said during the bank's second-quarter earnings call. "With the expected activity levels, we expect a significant acceleration of the revenues, particularly in 2023."

Even before the ECB's Sept. 8 hike, the pace of interest rate rises had led several of Spain's largest lenders to upgrade 2022 NII guidance. CaixaBank, BBVA, Sabadell, Bankinter and Unicaja all increased their forecasts for full-year NII following a stronger than expected first-half performance and brightening outlook for the last six months of the year.

"With interest rate increases already [starting], net interest income should move more positively," Bankinter CFO Jacobo Garcia said during the lender's second-quarter earnings call. "Now we see [NII for 2022] between the mid- to high single-digit growth, thanks to the steady and positive repricing of the mortgage and corporate loan book."

A 2.5% aggregate increase in the size of the Spanish lenders' domestic loan books during the second quarter helped drive NII growth in the period, with several of the banks reporting high demand for mortgages. Still, a deteriorating outlook for the global economy means a similar performance is unlikely in the last six months of 2022.

"We don't think that into the second half of the year, this pace [of lending] is sustainable," CaixaBank CFO Javier Pano said during the bank's second-quarter earnings call.

The delay in rising rates feeding through to Spanish banks' NII in the second quarter was seen in the slight increase in the banks' net interest margins — the difference between the average interest rates charged on loans and deposits. The lenders' NIMs rose by an average of just 6 bps quarter on quarter during the period.

The banks highlighted the sensitivity of their domestic balance sheets to rising interest rates due to the proportion of variable rate loans they contain. Santander and BBVA, which hold the majority of their assets outside Spain, said their Spanish balance sheets would benefit the most from rising rates.

"The big NII sensitivity to interest rates in our case is in the euro balance sheet," BBVA CEO Onur Genç said during his bank's second-quarter earnings call.