CaixaBank forecasts lending income to surge to €9B in 2023

CaixaBank SA expects income from lending to increase by almost a quarter to around €9 billion in 2023.

Net interest income — the difference between interest revenues and interest expenses — at Spain's largest domestic lender rose almost 16% to €6.9 billion in 2022 as higher interest rates began to feed through to its borrowers. Net interest income, or NII, growth was strongest in the fourth quarter, rising almost 23% quarter over quarter to €2.07 billion.

CaixaBank's bullish NII forecast for 2023 comes following the European Central Bank's Feb. 2 decision to raise benchmark interest rates by another 50 basis points, bringing its main refinancing operations rate to 3.00%. The ECB has now hiked rates by 300 basis points since July.

"We are facing a very different interest rate environment than we were facing a year ago and, obviously, a much more positive one," said CEO Gonzalo Gortazar.

The boost to lending income in 2022 helped CaixaBank record net income of €3.15 billion in 2022, a 30% increase from the previous year on a like-for-like basis. The repricing of loans drove a significant increase of 36 basis points in the bank's net interest margin in the fourth quarter to 2.18%.

CaixaBank's improving NII outlook comes after a sustained period of record-low interest rates in the eurozone squeezed lending margins, depressing profitability and weighing on share price performance. Recent economic data suggests the favorable interest rate environment may persist beyond what some forecasts project, the bank said.

"[These indicators] suggest to us that rates are possibly going to have to stay at higher levels for a bit longer than the latest we have seen from market movements," said Gortazar.

A sustained period of higher rates would likely drive continued strong NII performance into 2024, Gortazar said.

"We still feel that in 2024, asset repricing and activity are going to be more beneficial than [the negative impact from the] repricing of deposits," the CEO said.

Deposit beta

CaixaBank expects it will eventually pass on to depositors a percentage of the rise in interest rates in "the high 30s" by 2025, said Gortazar. Depositors had received around 4% of the increase in the current interest rate cycle as of the fourth quarter of 2022. The bank expects this to increase to around 20% in 2023, Gortazar added.

The change in the deposit beta will largely depend on the liquidity position of banks in the coming quarters, said Gortazar. Banks with weaker liquidity are more likely to compete for deposits by offering depositors higher rates.

"Deposit betas behave very differently depending on the loan to deposit ratio in the overall system," said Gortazar.

Spanish banks are expected to face a deterioration in liquidity in the third quarter of 2023 following the deadline for the repayment of a sizeable portion of ultra-cheap funding borrowed from the ECB's third targeted longer-term refinancing operation, or TLTRO III.

CaixaBank's shares were down 4.1% in early afternoon trading.