The year is proving to be very complicated for investors. Both fixed income and variable income are seeing significant falls. Beyond oil, natural gas and the dollar, which are the three winners in 2022 so far, there are also banks that are doing well and have accumulated very attractive returns this year. This is the case of Spanish domestic banking, which is at the forefront of the increases in the Eurozone banking sector index, the EuroStoxx Banks, thanks to the movements of the European Central Bank (ECB).
Caixabank accumulates a revaluation of 24.32%, Bankinter 12.11% and Banco Sabadell 10.50%. Among European banks, it is only overshadowed by the return figures for the shares of the Bank of Ireland, which have accumulated a rise of 12.3% so far this year. The British Standard Chartered climbs 26% this year and is one of the few banks that shines more than the Spanish bank in the Stoxx Banks 600 , where European financial entities from the eurozone and abroad are listed. Caixabank is, therefore, the bank with the second highest return on the stock market in the Old Continent and the first in the eurozone.
In the case of these entities, they all share their zero exposure to the conflict between Russia and Ukraine and a business that is highly focused on their countries of origin. Unlike other European entities such as BNP, Société Générale, Crédit Agricole and UniCredit, Spanish banks have no interest in the Russian economy. During the second quarter, these four entities announced increases in provisions in their presentations of results as a result of the war in Ukraine and the sanctions imposed by the West on the Russian state. In fact, the biggest falls in the sector are seen in Austrian entities such as Raiffeisen Bank with decreases of 61%, Erste Bank 44% or the Polish PKO Bank Polski with 42.6%.
The already announced increases in interest rates by the ECB) in July and September have made the market take the side of those banks that can benefit most from a higher cost of money in the eurozone. A higher interest rate causes the bank to raise its interest margin, which is nothing more than the profit it earns between the money borrowed and the money deposited by savers.
Spanish domestic banking , led by Caixabank, Bankinter and Banco Sabadell, depends largely on the price of money in the euro zone due to its business model focused on granting mortgages, loans to companies and consumer loans and deposits. According to the estimates of the entities, a rise of 100 basic points (one percentage point) in interest rates would allow an increase of around 3,100 million euros in the interest margin twelve months ahead, which is the time that the banks estimate that it should elapse for your accounts to reflect that increase.
Caixabank , in fact, would be the Spanish bank that would benefit the most from a more than likely rate hike by the ECB: it has a sensitivity close to 25% to a rate hike of 100 basis points. This means that its interest margin, after a year, would increase by 1,500 million, taking into account the figures at the end of 2021. The market knows it and for this reason the Catalan entity is being the big winner of the year on the stock market.In the case of Bankinter , it would enter up to 128 million more taking into account the figures at the end of 2021, with an impact on the financial margin of more than 10%. Banco Sabadell, for its part, pointed out in its annual financial report that the sensitivity of the interest margin one year ahead is 5%, which would mean some 171 million more. However, due to provisions and its policy of prudence against risk, the rise in rates in an entity such as Banco Sabadell takes 24 months to be reflected and not 12 months, so it could raise the interest margin up to 175 million quarterly two years ahead.
The movements of the ECB also have a counterpart for the financial sector , since if the monetary institution goes too far in its attempt to lower inflation and this ends up translating into a recession, the bank will suffer on the stock market due to the potential increase in delinquencies , the increase in provisions, the reduction of the real estate assets that they have on the balance sheet and the lower granting of credits and mortgages.
“It is logical to think that an economic slowdown and even a recessive process such as the one we are facing could affect the quality of banking assets, there will be a rebound in non-performing loans and an increase in provisions. However, we believe that the starting point of the banking system compared to the starting point of the previous crisis is different, because the capital ratios are four times what they were in 2008, the solvency ratios are much higher and the interest rates delinquency from which they start are also much lower. And above all in an environment of rising interest rates in which both its profits and its margins are going to be very positively affected. Banking is facing positively, or in a better way compared to other crises, apossible economic slowdown and even a recession,” says Alberto Fernández Carnicero, equity manager at Mutuactivos.