Banco de Sabadell, S.A. (SAB) Earnings Call Transcript
September 24, 2026
Earnings Call Speaker Segments
All right. Good morning, everyone, and great to see everyone back in the room. We are extremely pleased to have the management team of Banco Sabadell. I was thinking when you think about European Banking resilience through Pandemic wars and bids Banco Sabadell has to come to mind one way or the other. So we're extremely pleased to have Marc Armengol, Group CEO; and Sergio Alejandro Tome, CFO. Thank you both for coming.
Thank you. Thank you for having us.
So there's a lot of things that I'd like to discuss with you. But maybe the best way to go about this is to sort of look at the last sort of 12, 18 months have been rather eventful for you. as we've alluded to, you survived a tender offer, another one, you sold your U.K. business. And Marc, you've joined as new CEO. So maybe we can start by you running us through your thoughts, how you see fundamentals in this environment and maybe share your first impressions as CEO on things the bank is doing well and where maybe the bank is the abatement work.
Thank you very much, Antonio. And good morning, everybody. Indeed, we've been through a lot, right? And -- and what is -- I'd say that probably the most meaningful event has been the sale of our U.K. business, TSB, that has kind of brought Banco Sabadell into a bank that is kind of more of a pure domestic player in Spain. So we are -- we now have most of our activities in Spain, which is a country that is performing very well and probably we can speak about that a little bit later. But I think it gives us for a bank our size kind of the right span of attention and the right focus on the activities we need to perform very well. Sabadell is a bank that comes from a story of SME banking. So we have throughout all this period remained very, very close to our customers. And we continue to have, let's say, a very strong capacity of execution that we continue to show quarter after quarter delivering what we have committed. We have a highly engaged team after the tender offer process. I think that a little bit as a result of that. Our employees kind of got to the highest ever level of engagement that we are keeping down the way. And I would say that our starting point as we look forward in terms of our growth potential, couldn't be better. And I think that that's pretty much what I believe that we are doing well. When I think about what we should improve, I think we probably will need to become a little bit sharper on our strategic mandate for the different segments we are serving. And probably we will be looking forward to growing in a more aggressive way on how value segments, and that means continue to grow on SMEs, grow in a meaningful way on private banking, on personal banking. And on the segments, where in a way we have had probably higher levels of sophistication than what we needed, we will focus on reducing our cost to serve, namely on the retail business that we have in Spain. But having said that, at the end of the day, we keep high potential to grow and very strong execution capabilities that I intend to continue to use in the future.
Thanks for the color. Now if we look at Sabadell, it's come a long way, of course, and looking at profitability, the bank now generates 14.5% return on tangible equity and you're guiding to 16% in 2027, which is when your business plan targets and now how sustainable do you think this is when you look at these profitability levels in the other years.
I mean, 2 different messages. Number 1 is the more we see of the year, the more we find the right trends that kind of ratify us on our guidance in terms of profitability. And when I think about the future, what comes to mind are precisely these trends and the reasons that underpin them. We are seeing very strong growth on volumes that come from the good behavior of the Spanish economy plus the good behavior and the unique kind of value proposition we have in Spain. That is kind of resulting in an NII that is going on the right direction. We are also kind of seeing strong underlying activity on everything that generates the growing trend on the fees part of the world. So we are seeing, let's say, all the income side after we bottomed down in going on the right direction, and we will continue to see that in the quarters to come, and we don't see kind of a stop point for this for happening. And then on the cost side, we aim at growing and again, again, we have enough details to see that this will continue to stay in a whole different direction. All of that with the right direction as well in terms of cost of risk, which results in a, let's say, a clear pattern of opening the just looking forward, and by now, we can definitely kind of corroborate our intention for and our guidance for 27% of our return on tangible equity of 16% but looking forward, we will have the time to go, but we are certainly going on the right direction.
Great. Maybe a question for Sergio actually. When I look at your NII guidance, you've been sort of targeting growth at above for this year and for 2027 to reach EUR 3.9 billion. Obviously, we've seen new average 6 months and 12 months forward curve moving up. Maybe it's worth sort of giving us an update on sort of what you see as the key moving parts affecting your NII outlook from here.
Sure, absolutely. NII is a combination of volumes and margins, right? Volumes have been growing nicely and have been the main driver of the growth that we have already seen in the second quarter where NII grew 3.4%. And then we are expecting NII to continue growing in the next quarter and that we expect to meet our guidance of a 1% growth this year and getting close to or circa EUR 3.9 billion next year. . The building blocks of that is, again, a continuous growth in volumes that we are seeing volumes are growing in Spain, well in line with, let's say, nominal GDP, which is mid-single digit between 5% to 6%, and that is both in the loan side and in the customer funds. And then margins, initially, we budgeted not considering any changes in the rates that was the beginning or the end of last year. And the -- even with that, the impact of the volumes in the margins, we were expecting that to be a bit positive because of the mix of growth that we are seeing and expected more towards the SME and in individuals more towards the consumer loans. And then on top of that, this year, we are seeing rate hikes, the ECB has done 2 of them. It's now 2.5%. A market is expecting ECB to get to 3% potentially higher than that. We are -- ourselves are considering that the ECB may get to 3%. So with that, now we expect a gradual increase in the cost of deposits, but we think the pass-through of this rate levels to the cost is going to be in the 30% that we're having or below. And then also continuous pass-through in the loans. And all in all, we expect a higher increase in the loan yield than the one that we're going to have in the cost of deposits. And then we expect a gradual marginal increase in margins of quarters in the next quarters and over time. And this is explained by the fact that we are a retail bank. So the deposits reprice. The ones that reprice quite fast because they are either linked to overnight or Euribor 3 months. But then we have a big portion that do not reprice because they are transactional customers, transactional accounts, millions of them and they do not reprice. And then in the loan side, we have variable rate loans and the new business at the end of the day, more assets than deposits are repriced and with that we expect a positive development of the margins that we feel positive about meeting our guidance.
So you said about NII being sort of a function of 2 things, margins and volumes -- we talked about margins, and you said there's obviously a positive outlook on that, given what's happening on rates. If I look at Spain, and this is a question for you both. I mean, the economy has been growing once again quite strongly when it comes to nominal GDP. Can you talk a little bit more about sort of the outlook for loan growth? What are you seeing from your clients? And what you're seeing from your competitors. We've had a few Spanish bank here the last couple of days talk about increased competition in other parts of the segments, but we'd like to hear your stance and to what extent growth can continue to come without compromising on price discipline.
Yes. I mean, Spain is the fastest-growing economy in the European Union. And this seems to be kind of -- or has been kind of a sustained trend with -- we've been seeing recently, 2025, Spain grew at 2.8%, the GDP, while the average of the EU was 1.4%. And not only that, but when we look a little bit at how healthy this growth is, we see that on one hand, the level of indebtedness of the real economy of companies and families is at a historical minimum. So we don't see any kind of stretch element in there. We see very healthy unemployment trends believe it or not, being under 10% for the Spanish economy is amazing. And we see that this strength has fundamental reasons that will continue for quite some time. This is what's going to drive the growth of the credit demand in the years to come as well. When I think about this kind of competitive landscape, I think we have different stories for different parts of the lending business. On the mortgage end the competition is aggressive. I'd say that the prices on a stand-alone product basis are not competitive. What we all do in Spain is we cross-sell products in a way that overall, the overall sale moment brings us to levels of return -- risk-adjusted returns over 20%. So we have found the mechanisms to -- at the point where we sell the mortgage, complete the value proposition for the customer with other products that increase the level of profitability on that end. Competition is strong in there as well. On the consumer loans, we see very strong growth, double-digit growth on the market, and we are sitting comfortably at that level. What is unique for some players like us is that we are able to deliver that growth, growing with existing customers through preapproved loans. So we understand the profile of the customer, and we are preapproving loans for them and therefore, being able to grow with the system with our existing customer base, which is way better in terms of credit quality. On SMEs, I'd say that the specialization level comes with a margin that we are able to achieve, and we have the right level of differentiation. And yes, when I say overall, it is a market where we see healthy competition, but we feel that it's the right way to go.
Sergio, anything you'd like to add on this?
I think it's very complete.
Now maybe moving on to sort of noninterest income growth, which, of course, remains a focus I think you're anticipating growing at mid-single digit to 2027. Obviously, inflation is higher than expected, while it's been shining at around 4%, so can you share your fee expectations across different products? And how we should think about also your partnerships in the outer years?
Yes. So let me start probably by sharing a little bit, again, the underlying factors that explain our guidance and what are we seeing? So on fees, I'd say, on the asset under management world, what we are seeing is very strong growth of the volumes, right? We grew year-on-year 11%, and fees kind of go along with this level of growth. On the lending side, so the CIB, what we are seeing also is a very strong pipeline of transactions, and we are kind of going on this kind of flight to quality in terms of the quality of our earnings to more specialized businesses like debt capital markets, equity capital markets, and M&A. So we are seeing, again, strong activity on those areas. And then on the payment space, again, we continue to see a healthy growth, which happens not only on the total volume of the operations, but also in the number of transactions that shows that the underlying growth is also is also strong. In terms of partnerships, we recently announced that we have extended our agreement with Amundi and this comes as a result of the fact that we believe and we are comfortable with this, let's say, industrial model that puts together the scale of a big partner who can devote resources to build the best possible product for our catalog to put it in front of our customers. On that situation, we were not that happy with the economics of that because that agreement came from back in 2020 when the bank was in a weekend of hungry for capital. So we have kind of reshuffled the numbers of that partnership. We will start to see the results of that in the results of this Q3 that will happened at the end of October, if I'm not mistaken. But now we have kind of the rice partnership in place for the asset management business. On top of that, we have partnerships as well very similarly with -- on the insurance business with Zurich and some others, where we believe that probably doesn't make for a bank our size to develop the full complexity of the product, but we want to provide this level of quality to our customers.
And when it comes to the sort of your merchant acquiring business, do you intend to provide the disposal of that to Nexi?
Yes, we were in conversations with Nexi. This is something that in the process of the hostile takeover kind of was put on hold and then it was decided to -- we both decided to let it go. We are comfortable with where we are. We are market leaders and on the merchant acquiring business in Spain, we have a 20% of market share. We have all of the alternatives open, but we don't expect to see anything change anytime soon. Makes sense.
Make sens. Maybe a question for Sergio then on asset quality. It's something the doesn't come up anymore in questions almost. And the provision in this cycle is turning out to be obviously better than anybody would have expected. -- you guided to 40 basis points cost of risk for this year and for 2027. You've proven to be able to sort of reduce provisioning needs and -- but also have updated business mix the sale of TSB. How should we think about this cost of risk guidance? And any additional color you can share?
Yes, We see cost of risk stable at the 40 basis points. Last year was a bit better based on different one-offs and provision releases. We see that the provisions that we have had in the first half of the year kind of the words that we should get on a recurrent way. And this is based on that the book, actually, we see an improving trend on credit quality. We're seeing nonperforming loans going down and the book going up. And as a result, the nonperforming loan ratio going down remarkably, 2.5% at the end of last quarter, almost 40 basis points reduction year-on-year. We have, as we measure a lower probability of default in the new business that we produce and that is continuously kicking in the quality of the credit book. But then as you said, the mix that we are producing, we are producing a bit more in a relative basis or consumer loans. We're also boosting our SME business. So because of the mix, we think that cost of risk is going to be rather stable. And this is this combination of actually an improving trend in the existing book, but different mix -- a slightly different mix in the new business. And there's a lot of noise, of course, with the conflict with the oil prices, but Spain has proven to be quite resilient. I think that the energy mix that we have in Spain is a singular one with a lot of renewable sources of energy. And we have seen that our companies have been funding -- have been able to find ways to overcome these different shocks. And the picture for credit quality is stable and positive.
Okay, anything you want to add?
I think he's covered it all. I'm glad that these kind of questions don't come up.
Don't come up anymore. This thing is a...
It's great, but this is the news.
It's both comfortable and uncomfortable things you know how to work. But -- then we talk about capital returns because obviously, this is -- remains an important pillar of your investment thesis. You're running at about 13.1% CET1 ratio. You set your payout at 60%. This year, you've paid your first interim distribution through a share buyback rather than a cash dividend. I think this is an important point. So maybe let's spend a bit of time elaborating on your shareholder remuneration policy and explain whether there's been any changes in your approach to how you think about capital distribution?
Okay. I mean, the share buyback being on this kind of first interim distribution, I would say that has been quite exceptional for us. The reason for it is that as you might know, we decided to distribute a cash dividend pretty meaningful one after the sale of TSB, which resulted on kind of returning the capital to the shareholders and that cash part of the dividend that had been paid and have made us to think that the idea of a share buyback that we can of shows as well the value of the business was the right decision. The remuneration policy remains unchanged. There is a payout of between 40% and 60% in our policy, we have been paying 60% so far of the net profit. And on top of that, we distribute any capital -- any excess capital over 13% on our CET1 ratio. We typically have done that through, let's say, this 60% being paid as a cash element and the excess capital being remunerated via share buyback. This is what we have historically done probably in the future, the Board will decide, but it's probably what will still remain.
That's very clear. And maybe then going back to sort of set here on costs, sort of keeping costs in check is never straightforward when we account for inflation, IT investments, and those are obviously both very important themes and banks are increasingly sort of looking at ways to sort of optimize that. But what's the outlook for cost at Sabadell when we look ahead and what flexibility do you retain as a management team to sort of keep them under control?
Yes. We were expecting cost to grow at around 3% this year. We were happy to share with the market that we have improved slightly in this guidance. So we see cost increase clearly below 3%. On the 3 components that we identified below the cost line, which are in the first hand, the personnel expense, we have been able to execute a pre-retirement program this year that has affected a little bit more than 400 people. And with this, we are able to actually reduce the head count of the bank and this is thanks to the different initiatives of efficiency, digitization and improvements in the process that we have been running so that we can do actually more business with less people. And with this, despite the inflationary environment, we are -- we feel comfortable that we will be able to grow the labor cost at the low single digits. And then in the second component of the cost base is the general expenses. General expenses also connected with all the initiatives, all the technology deployment that we are doing we think are going to be rather flattish, the cost in general expenses. And then the third component are the amortizations coming from investments where here, clearly, technology is the name of the game, and we keep investing as much as we need to support the business and to develop the business and the amortizations are actually growing at a high single digit. All 3 combined delivered this 3% or below 3%, growth in cost, all of them. And with this, we feel that we are able to manage people, managing all costs and keep on investing in all the things that we need to develop in order to support the growth of the business and the quality of service.
Maybe we'll follow up later on sort of on technology because I think it's an important point. But before we get there, going back to Marc, sort of big picture view and when you look at sort of the UPM financial landscape, has been changing quite significantly. If I look at European banks versus international banking markets, how do you view sort of scale? And do you think you have you have capacity to sort of be able to absorb sort of the IT infrastructure, do you see the need for Spanish banks to sort of pursue further scale in order to sort of compete on product offerings as well as technology.
Now that I've heard from my CFO that we invest everything we need to invest to support the business and the customer service, I feel better. But on a serious note, I mean, I strongly feel that we have the right size to compete in the market we compete in, which is Spain, right? Size comes with economies of scale, but it also comes with complexity. We have been able to undertake major technological transformation in the recent years, while generating capital to fund the growth and to remunerate our shareholders. And I think that there is a value on the simplicity of being a bank that sits very, very close to the customers and that understands the customers' needs on one end and that has this size as well to make weak decisions and to move quickly on building solutions for these customers. I think that this is going to be even more key when we look at the challenges we have ahead of us. And let's keep in mind that Sabadell is not a super large bank, but we invest -- we spent EUR 0.5 billion on IT on a yearly basis, and we still have the right capital to, again, finance the growth and to pay our shareholders, right? So at the end of the day, I don't think it's about the size. I think it's about making sure that you understand what your customers need and being quick and nimble on delivering these solutions to customers.
I think you've answered, but I'm going to put it less elegantly and be more direct. Do you see more need for M&A in Spain? Or do you think this is.
I mean when I look at the banks in Spain, I believe that we all feel the same way, which is that we have plenty of room to deliver value on a stand-alone basis. And that's -- and while this stays this way, we -- I mean, nothing is going to happen in -- probably in terms of consolidation in Spain. [Audio Gap] we have developed this throughout the years.
And when I look at where do we see it in terms of market shares currently and just to name an example, we have 1 out of 2 companies in Spain, our customers Banco Sabadell. We only have a 9% of lending market product for private banking customers. All companies have owners, all companies have executives. We have a long way to go to capture these opportunities to acquire these customers and to make them grow. It is a segment as well that makes us less vulnerable to what we are seeing in terms of risks of the intermediation that might eventually come at one point in time in the future with AI. The new entrants also landing with this platform banking model that develops on things and lands in 80 different countries. So we believe that stressing out the importance of relationship banking and competing and becoming the best bank on those segments, we will have the right competitive in direct competitive bank to compete in Spain.
Anything you want to say on Banco Singular, why you want to...
Yes, singular bank. I mean, it just didn't fit our moment or our business at the point in time it happened. So we were not interested on acquiring it as much as I can say.
Thanks for the question. Thank you. Any more from the audience? There's one microphone is coming from the right side.
There was a gentleman with a coffee.
15 years ago or that we will be having discussions here about problematic real estate loans. Obviously, the Spanish economy and has taken back, including develop return to real estate development and operations from both the regulatory and the bank management perspective. do you have the capacity comfortably to meet the new requirements from this area? And could you comment on the quality of what you're seeing in the real estate space?
Thank you very much for the question. I think that 15 years ago, with let's say, geopolitical situation, we would be talking about everything having stopped right, and everyone kind of being on hold in terms of making investment decisions. I think we have developed kind of these strong resilience after a global pandemic after the Ukraine, Russia war after the cost of living crisis after, let's say, the geopolitical volatility that I think has strengthened the quality of the growth that we are seeing. In terms of the real estate situation in Spain, as you know, we had a big bubble that burst in -- right after 2008 and for quite a long period of time. But what we have seen in recent years is that the thing has gone the other way around. So we have had a lot of immigration coming into Spain. A lot of regulation going into the real estate market trying to, in a way, kind of patch the situation. I wouldn't say solve and this has resulted in a kind of imbalance on -- that has, at the end of the day, resulted in a lack of offer. So Spain today has a problematic that is that the prices of the housing have gone to the roof. And now there is a little bit of, let's say, a consensus that everybody needs to work on the direction to solve this problem. And solving the problem means building more houses in Spain. We have been having conversations, as you can imagine, with -- I mean, within the banking sector, with politicians and so on. And we are more than willing to contribute to solve this problem, playing the role we need to have. But I don't think we -- I mean we do not see any, let's say, typical risk on this situation that would be more coming from the credit quality part of the story. What we are seeing is that we need to find a way to speed up authorization processes for new houses, finding new places to build houses in Spain and making the financing for that kind of flow through the economy to solve the problem that risks eventually at some point in time if it doesn't get solved to become kind of a bigger problem.
It's actually on top of the political agenda. The 2 main topics in our recent survey were housing and integration. So there's this big imbalance between demand and supply. So that's -- it's going to be important for the company and for the new elections. If there's no more questions, I'll go with 1 more that I've been asking also to some of your peers. We've seen more and more sort of markets seeing new entrants in the form of digital offering from banks. We've seen players like Revolut, but also JPMorgan Chase have either entered or are in the process of entering the Spanish market, you've been in London through the lens of TSB for years you want to move back to Spain. How do you assess competition on this topic? And how do you see more importantly, sort of your market positioning compared to other online and digital platforms?
Let me start by saying and with this kind of views, having spent some time a leading retail bank here in the U.K., but banking in Spain and in other countries is very different. And banking in Spain is more relationship-based. So you, in a way, kind of become the customer of a bank and you stay the customer of a bank forever, right? Having said that, and I don't want to underplay kind of the threat that the new entrants mean for us. I think that it's -- they're going to have an impact on I'd say, on one end, on raising the bar in terms of the quality of the functionalities, we will need to provide to the retail space, and we are working on making this happen. And then I also think that we are kind of targeting different -- kind of different customers or different models. What we do, we certainly use attractive rates to acquire new customers on the digital space, but we do it with a very clear path to loyalty strategy. And and we are successful at doing that. We know that 1 out of 2 newly acquired customers to the bank, after 1 year, we become their main bank, and that's -- and we know that 1 out of 2 will bring us their payroll in the period of 1 year, and we'll make the usual payments with us in the period of 1 year. Our model looking forward, as I said at the beginning, it's going to be kind of centered or focused on this idea of developing strong relationships with customers. And that's what we will build our value proposition around.
Great. Super. I think time is up anyway. So I want to thank you both for sharing your insights. It's great to chat to you and thanks for everyone an for coming in.
Thank you.
Thank you.
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