According to S&P Global Ratings, the possible merger between BBVA and Banco Sabadell would be considered “manageable” in terms of capital. The rating agency points out that the addition of the market share of both entities would not harm market conditions, taking as a reference similar experiences in other countries.
S&P shows no concern about the business model of Banco Sabadell, since it considers that it can be viable alone. Furthermore, it projects that the entity will have a financial return (ROE) of more than 11% this year. However, the agency warns of a possible correction in its stock price if the merger operation does not develop as expected.
In terms of ratings, BBVA has a stable ‘A’ grade, while Sabadell has a ‘BBB+’. However, Sabadell’s positive outlook could benefit BBVA if the takeover bid is completed. It is important to highlight that Sabadell’s positive outlook is not directly linked to the merger, but rather to internal factors of the entity.
S&P identifies opportunities for banking consolidation in Spain, especially in the medium-sized banking segment. Despite this, the agency points out that this process is already underway, since the Spanish banking system has gone from having 45 entities to only 10, which has generated efficiency measures in both personnel and offices.
Stability in bank profitability
Luigi Motti, managing analyst of financial institutions at S&P, indicates that 2024 was the “peak year” for bank profitability, but it is expected to remain solid in the current year.
Following the recent improvement in Cajamar’s rating, all Spanish banks now have ‘investment grade’ solvency. This is due to the operations to clean up assets inherited from the crisis, which have been completed and accelerated.
Spanish financial entities have experienced sustained growth in their ROE, reaching high levels. In the future, they are expected to widen their profitability differential compared to their European peers, while maintaining the quality of their assets.
Despite the decline in interest rates, some of the margin improvement at banks is expected to be long-lasting as they have strengthened their funding structure and growth in lending activity is expected.
On the other hand, S&P believes that the bank tax will slightly affect the income statementsalthough its overall impact on the sector will be limited, focusing mainly on larger entities.
In the event of worsening economic data due to external risks such as geopolitical risks, the quality of banks’ assets could decrease or reduce their business expectations. Furthermore, the Government’s lack of ambition to address the public deficit could increase Spain’s vulnerability to these shocks. Finally, the threat of cyberattacks in the financial sector persists.