CaixaBank sees Q1'22 'trough' for net interest income as rate outlook brightens

CaixaBank SA expects its main source of revenue to bottom out in the first quarter of 2022 as Spain's largest domestic lender works to improve its loan book and a rise in interest rates becomes increasingly likely.

CaixaBank's net interest income — the difference between the revenue generated from a bank's assets and the expenses associated with paying on its interest-bearing liabilities — fell 1.9% in the fourth quarter of 2021 to €1.56 billion from the prior three-month period. It was the fourth consecutive quarterly decline in net interest income, or NII, accounting for the integration of Bankia, and contributed to a 5.8% annual NII drop for the full year to €6.42 billion.

The pressure on NII during the latest quarter was due to lower asset yields and average loan volumes, CFO Javier Pano said during a Jan. 28 earnings call. Still, the bank, which announced a full-year profit attributable to the group of €5.23 billion, expects NII to pick up in the second quarter of 2022 after a further drop in first.

"The trough on NII is going to be in the first quarter," Pano said. "Our loan book is improving gradually."

CaixaBank is aiming to reduce the interest rate gap on mortgages between its recent and historical customers, though the process will be gradual. "The positive dynamics that we are seeing also in terms of consumer, corporate and [small and medium-sized enterprise] lending also will help to have at least a flattish loan book into next year," said Pano.

The bank expects further NII upside from its increasing Assets and Liabilities Committee, or ALCO, portfolio, which mainly holds government bonds. It plans to build the portfolio to 15% of its total assets, or around €90 billion. "This offers plenty of upside because we have plenty of liquidity to deploy," Pano said.

CaixaBank anticipates that the changing interest rate outlook will help improve its net interest income performance in the coming quarters. Spiraling inflation has prompted central banks around the world to hike interest rates or warn that higher interest rates are imminent. Higher rates would allow banks to improve the margins between what they receive from interest in loans and what they pay out to customers holding deposits.

"There's a different interest rate outlook now," CaixaBank CEO Gonzalo Gortázar said. "In this context, we're looking to the future with confidence."

CaixaBank expects to benefit significantly from any hike in interest rates by the European Central Bank due to its "sensitivity to higher rates," said Pano. "Our sensitivity is quite high and an upward move of 100 basis points in yields would result in an improvement of NII between 20% and 25%, depending on the different assumptions."

The bank is unable to provide specific guidance on the trajectory of NII as it is working on a long-term strategic plan, which it will unveil in the spring, Pano said.

The bank's slump in NII was offset by a strong increase in fees and commission in the fourth quarter and 2021 as a whole. Net fees and commission in the fourth quarter rose 14.1% quarter over quarter and 10.8% year over year on a like-for-like basis to €1.10 billion. The quarterly performance helped CaixaBank record a 6.7% annual increase in fees and commissions to €3.99 billion in 2021.