Banco Sabadell’s Q4 net profit soars, driven by loan growth and lower provisions

Investing.com -- Banco Sabadell (BME:SABE) on Friday reported strong fourth quarter results with net profit rising by 75% compared to the same period in 2023. 

The Spanish lender attributed this sharp increase to the continued growth in net interest income, lower provisions, and improvements in asset quality.

The bank’s net profit for the quarter reached 532 million euros, a jump from the 304 million euros recorded in the fourth quarter of the previous year.

For the full year, Sabadell posted a net profit of 1,827 million euros, representing a year-on-year increase of 37.1%,as per the company’s statement. 

Excluding its UK subsidiary TSB, the group’s profit stood at 1,574 million euros, while TSB contributed 253 million euros to the total earnings.

The growth in net profit was driven largely by an increase in net interest income, which rose by 6.3% year-on-year to 5,021 million euros. 

This was supported by higher loan yields and additional revenue from the fixed-income portfolio, which benefited from prevailing interest rate conditions. 

The bank also saw a positive impact from extraordinary interest on arrears linked to debt recovery after a favorable court ruling.

Despite a 2.1% decline in net fees and commissions, which totaled 1,357 million euros due to lower service fees, the bank’s core revenues (net interest income plus fees and commissions minus recurrent costs) improved by 6.0% on a yearly basis. 

This reflects a solid performance in the bank’s lending activities, particularly in Spain, where loans to SMEs and individual borrowers saw steady growth.

Sabadell also reported a 5.3% annual increase in performing loans, with strong contributions from its Spanish and international operations, particularly its Miami branch. 

On-balance sheet customer funds grew by 5.4%, while off-balance sheet funds saw a 13.8% rise, largely driven by mutual fund subscriptions.

The improvement in profitability was further supported by a 20.1% decline in provisions and impairments, which totaled 652 million euros. 

The bank credited this reduction to better credit quality and the release of 54 million euros related to debt recovery and provisions set aside for flood-related damages in Valencia.

Total (EPA:TTEF) costs increased by 5.4% year-on-year, mainly due to higher staff expenses and general operational costs. 

However, efficiency gains helped to offset this increase, and the bank maintained a disciplined approach to expenditure management. 

The return on tangible equity for the full year stood at 14.9%, an improvement of 343 basis points compared to 2023.

In addition to the final dividend, Banco Sabadell’s board has proposed a remuneration package that exceeds 60% of attributable net profit. 

As part of its broader strategy to optimize capital distribution, the bank also announced plans for two share buyback programs.