Sabadell’s profit rises 62% driven by cost reduction and TSB

Banco Sabadell closed the 2022 financial year with a net profit of 859 million. This result represents a jump of 61.9% and is explained, in part, by the reduction in costs and the contribution of TSB. This is its second best historical result, only below the 900 million of 2006. The increase in the cost of money last year advocated by central banks to curb inflation has also had its impact, although still small, according to bank sources, as it has not yet been fully reflected in its figures. This positive evolution allowed the group from Valles to grow its purely banking business at an interannual rate of 26.3%. The entity has skyrocketed on the stock market after announcing the figures this Thursday: at mid-morning its shares appreciated more than 9%.

The interest margin grew at a rate of 10.5% and stood at 3,799 million, while net commissions reached 1,490 million, 1.5% more. This increase is also benefited by a 12.8% reduction in costs, once the workforce has been cut with the employment regulations closed in the two previous years. In the last year, 130 offices have been closed and 1,185 workers have left the group.

These are precisely the two metrics that will be levied by the extraordinary tax on the sector promoted by the Government to cover part of the anti-inflation measures. Although the tax rate will only be applied to the numbers of the banking business in Spain. Thus, after registering an interest margin in the country of 2,499 million and net commissions of 1,344 million, the group will have to face a payment of almost 185 million for the new rate. That is, it will eat a little more than half of the increase in profits recorded in the country (it goes from a benefit of 412 million to 740 million). It now remains to be confirmed whether Sabadell will appeal the tax once it makes the first advance in February.

Returning to the group’s results, another lever for the growth in profitability has been the improvement experienced by the British bank TSB, for which 2022 was the best year in terms of pre-tax profits since its integration into Sabadell, with 102 million pounds. This has allowed it to contribute 87 million euros of profit to the group. That amount has already discounted the fine agreed last December with the UK Financial Conduct Authority and the country’s Prudential Regulation Authority for filing investigations into the crisis of technological migration of customer data. and the payment of a fine of 48.65 million pounds (55.6 million euros). Although in reality the impact will be around half, since the other part is covered by insurance policies.

The reduction in provisions, which fell by 15% in relative terms and 193 million in absolute figures, is another of the elements that contributed to the improvement in results and which allowed pre-tax profit to double, to 1,243 million .

share repurchase

The bank, as the large Spanish banks already did last year, agreed at its board of directors held this Wednesday to repurchase Sabadell shares for an amount of 204 million euros. These titles will be amortized and the operation seeks to give more value to the shareholder for their titles. Between the distributed dividend and the buyback program, it is estimated that the shareholder remuneration will reach 50% of the group’s profit.

This decision is a sign of the confidence that the bank has gained in recent years, after its share has recovered from the historical lows that made its previous management consider being absorbed by BBVA. From the 26 cents at which the share was listed, then it has gone to one euro, at the close of this Wednesday.

“All the business units have increased their profitability throughout the year,” says the CEO of the Vallesan banking group, César González-Bueno, in a statement, who points out that the entity’s strategic plan is being carried out “with determination” and “it is paying off”.

The improvement in activity represented an improvement of 0.8% in outstanding credit (156,130 million euros) with an improvement, above all, in the concession of the mortgage portfolio, which grew by 1.4% and represents 39,027 million euros. Loans to companies, for an amount of 43,409 million, increased by 0.4%. The item that grew the most was consumer credit, 14% more (1,683 million).

On-balance sheet customer funds totaled 167,140 million, an improvement of 1.3%. Time deposits, despite the fact that the rise in interest rates has not fully passed through to remuneration for savers, grew by 9%. Off-balance sheet resources amount to 38,492 million, 7.6% more.

The bank has managed to improve its capitalization by two points and its CET1 ratio fully loaded it stands at 12.66% (well above the 8.65% required by the ECB). Despite fears at the beginning of the year about the impact of the war in Ukraine and the impact on the economy, the non-performing loan ratio has dropped to 3.41% (24 basis points less than a year earlier). Problematic assets amount to 6,971 million. Despite this, the sector agreed with the Government to extend the Code of Good Practices to help households in need. A preventive plan, since the aggregate data shows that the default rate remains at historically low levels, below 4%.