Publications

Financial conditions started to turn supportive a bit in September with the fall in credit interest rates. With a lesser fall in TL deposit rates though, margins are still on pressure. Yet, the sector well manages the cost evolution and expanding loan volumes in higher yield segments which improves the NIMs gradually.

After more than a decade of deleveraging, the Spanish banking system has changed phases. In 2024, the credit balance to the resident private sector turned positive again, with contributions from both households and businesses, and this trend continued into the first months of 2025.

Tariff wars and shocks to international trade can significantly affect economic activity and the performance of banking systems.

As a result of the ongoing tight monetary stance, credit growth trend turned into a deceleration from a moderate path. Higher level of real interest rates result in more restrictive financial conditions. Expected rate cuts in coming months and potential ease in regulatory growth caps might reverse this outlook a little bit.

On the back of both internal & external shocks, the CBRT hiked the ON lending rate to 46% and squeezed TL liquidity in March. With the tightening steps, credit growth decelerated and the increased funding costs are expected to weigh on the 2025 profitability of the sector.

Credit growth accelerated throughout February beyond the growth caps. Therefore, the monthly growth limit has been reduced further for FC lending at the start of March. The CBRT aims not to allow demand conditions to contain the disinflation process, signaling new macro-prudential measures if necessary.

Spanish banks are rapidly translating the reduction in official interest rates to new lending operations' interest rates, which benefits borrowers. In the case of deposits, the transmission is slightly slower than in the hiking cycle, which benefits depositors.

Profitability and NIMs of the sector have started to improve in 4Q24, which will continue with the rate-cutting cycle of the CBRT. The monetary stance remains to be supported with the macro-prudential measures. We expect the ROE of deposit banks to barely improve to 30% by end 2025 from 28.4% at the end of 2024.