By Jesús Aguado
MADRID (Reuters) -Spanish bank Unicaja on Tuesday raised its forecast for lending income for 2024 after interest rates remained higher than initially expected in the second quarter, though it said margins fell on higher funding costs.
The decline in margins in April-June from the previous quarter sent shares in Spain’s sixth-largest bank by market value down 4% in early trade. Unicaja reported a 61% jump in second quarter net profit, but that was also below market expectations.
Rising interest rates in recent years enabled Spanish banks to charge more for loans while keeping a lid on the rates they pay to savers, but now that interest rates have started to fall banks’ margins are starting to be squeezed.
Central bankers have been warning that deposit costs would gradually pick up and hit margins.
Unicaja’s net interest income (NII), a measure of earnings on loans minus deposit costs, rose 19.6% year-on-year in the second quarter to 383 million euros ($414.60 million), in line with analysts’ forecasts.
However, NII fell 1.8% against the previous quarter as customer spreads decreased by 8 basis over the period as deposit costs rose 4 basis points while the yield on loans fell 4 bps.
With interest rates remaining higher for longer than expected, Chief Financial Officer Pablo Gonzalez upgraded the bank’s NII guidance for 2024 to close to 10% from a previous low-single growth outlook.
“(The) first six months (were) better than what we were expecting (…) this trend looks like it’s going to be continuing throughout the year,” Gonzalez told analysts.
Net profit of 184 million euros for April-June was below the 191 million expected by analysts, putting pressure on the bank’s share price which has surged 50% this year.
Higher earnings helped Unicaja increase its return-on-tangible equity ratio (ROTE), a measure of profitability, to 6.5% at the end of June from 5.4% at the end of March.
This allowed the bank to lift its ROTE goal on an adjusted basis – taking into account a fully-loaded core capital ratio of 12.5% – to over 10% for 2024 from a current adjusted ratio of 8%.
The bank’s total performing loan book shrank 5.9% in April-June year on year, while new residential mortgages, the bulk of its loan book, fell 12% against the same quarter last year although they rose by around 30% compared to the previous quarter.
($1 = 0.9079 euros)
(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro, Jason Neely and Susan Fenton)
