Spanish banks set for strong 2026 on improved NII outlook, minimal war exposure

Spain's biggest banks are well-positioned to deliver strong results in 2026 as prospects for their lending income improve and exposure to the war in Iran appears limited.

Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA all reported net profit growth in the first quarter, led by Santander's 73.7% surge, Visible Alpha data shows. Banco de Sabadell SA was the only bank to report a profit drop.

Banks are confident they can meet their 2026 financial targets, with some even signaling upsides to their goals as expectations around interest rates shift in light of the war in Iran.

"We expect Spanish banks to deliver another year of strong results in 2026 despite the current geopolitical environment, on the back of a supportive domestic economy and, to a lesser extent, the potential increase in interest rates in the second half of 2026," Morningstar DBRS said in a May 5 note.

Upbeat outlook

Santander's global and diversified business — key markets include the US and Latin America — provides the bank with a cushion against the potential economic fallout of the war, CEO Héctor Grisi said.

"Brazil and Mexico could benefit from the whole thing, and also we see the US basically becoming very strong," said Grisi on the bank's first-quarter earnings call. "I do believe that we are located in the best places right now [in] this situation."

BBVA CEO Onur Genç also noted that the bank's core markets are isolated from the conflict. With interest rates projected to increase, he even sees potential upside for the bank's two biggest markets — Spain and Mexico — following a strong first quarter.

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Expectations for interest rates have changed since the outbreak of the Middle East war caused oil prices to jump and raised fears of inflation. Analysts now forecast two rate hikes by the European Central Bank (ECB) this year, one in June and one in September, according to a recent Bloomberg News poll.

The ECB has kept its policy rate at 2% since June 2025, having cut it from 4% over the previous 12 months.

BBVA registered the highest annual growth in group net interest income (NII), followed by Santander and CaixaBank, according to Visible Alpha data. Sabadell was the only one to report lower NII during the quarter.

"We are already seeing the bottom of the rate cycle in both countries, [Spain and Mexico]," BBVA's Genç said during the bank's latest earnings call. "Our strong loan growth and proactive price management continued to support NII growth, and with stabilizing rates, we are very positive for the future."

CaixaBank, Spain's largest domestic lender, expects NII to increase steadily on a quarterly basis throughout 2026, and potentially stretching through to 2027 and 2028, on the back of a favorable lending environment at home.

Sabadell also expects higher interest rates and healthy loan volumes to drive NII growth for the rest of the year, CFO Sergio Palavecino said on the bank's earnings call.

On fee income, only Sabadell posted a decline, while the rest recorded single-digit growth, according to Visible Alpha data.

"While we acknowledge a slower quarter than expected, we believe this marks a trough that will serve as an inflection point," Palavecino noted.

Impairments rise

The impact of rising geopolitical risk did show in Spanish banks' expected loan losses, with three of the four lenders increasing provisions.

BBVA's provisions increased the most after it set aside €98 million to address geopolitical uncertainty associated with the Middle East war. The bank does not expect any deterioration in asset quality at present as the group has a very limited direct exposure to the Middle East, although its Turkish unit could face risks from a prolonged war.

CaixaBank followed with a 19% year-over-year growth in provisions. CFO Javier Pano said the bank is provisioning for the potential impact of the conflict, as well as for the mortgage market in Spain, a key sector for CaixaBank that has been under intense pricing competition.

"In terms of how we see the future, you've seen a very strong residential mortgage market, [but] I think it is likely to moderate its growth," CEO Gonzalo Gortázar said during the bank's earnings call.

Meanwhile, Sabadell provisioned around €94 million during the quarter following a review of macroeconomic scenarios, while Santander set aside additional provisions for the UK motor finance redress scheme and for its deteriorating portfolio in Argentina.

Spanish lenders' asset quality continued to improve during the quarter and showed no early signs of deterioration despite significant lending growth and heightened uncertainty in the global economy, DBRS wrote in the note.

The agency does not expect the banks' asset quality to weaken through the remainder of 2026, noting that any potential negative impact from high inflation would take about nine to 12 months to reach consumers.

Visible Alpha is a part of S&P Global Market Intelligence.