Banco de Sabadell sees domestic Spanish growth driving its strategy as a standalone lender, with the bank targeting a 16% return on tangible equity by 2027, up from the current 14.5%, during commentary at the Bank of America 31st Annual Financials CEO Conference on Thursday.
Group CEO Marc Armengol pointed to what he called strong volume growth rooted in Spain's economic momentum and the bank's domestic value proposition. Spain's nominal GDP is projected to grow 2.8% in 2025, roughly double the European Union average of 1.4%, Armengol noted.
"We are seeing very strong growth on volumes that come from the good behavior of the Spanish economy, plus the good behavior and the unique kind of value proposition we have in Spain, that is resulting in an NII that is going on the right direction," Armengol said.
CFO Sergio Palavecino said loan and customer-fund volumes are tracking closely with Spain's expected nominal GDP and loan growth of 5% to 6% over the medium term. Second-quarter net interest income rose 3.4%, and full-year 2024 growth is expected to exceed 1%, with NII on track to reach approximately EUR 3.9 billion by 2027.
The bank is guiding for cost growth of less than 3% in 2024, below its initial estimate of 3%. Cost of risk is held steady at 40 basis points through 2027. Non-performing loan ratios fell to 2.5% at the end of the latest quarter, a 40-basis-point improvement year over year. Assets under management rose 11% year over year.
Armengol described the sale of the U.K. business TSB as the "most meaningful event" in the bank's recent transformation, noting it has left Sabadell as a purer domestic Spanish lender. He added there is "plenty of room to deliver value on a standalone basis."
On digital acquisition, the CEO said one in two newly acquired digital customers becomes the bank's main account within a year, and one in two transfers payroll there over the same period. The bank currently holds about 9% of the SME lending market, 5% of mutual funds, and 20% of merchant acquiring in Spain. One out of every two companies in Spain is a Sabadell customer.
The ECB rate is being referenced around 2.5%, with expectations of a move toward 3% or higher. Deposit repricing pass-through is expected at roughly 30% of ECB rate increases or below, Palavecino said.
Sabadell plans to return between 40% and 60% of net profit as cash dividends and use buybacks for capital above its 13% CET1 threshold, with the current ratio at 13.1%.
Technology investment runs approximately EUR 500 million annually. The bank is also running a pre-retirement program affecting more than 400 employees. Spain's unemployment rate sits below 10%.
