By Jesús Aguado
MADRID (Reuters) -Spain's Sabadell raised its 2023 forecasts for profitability and lending income growth on the back of higher interest rates after beating quarterly earnings expectations.
Shares in Spain's fourth-largest bank by market value rose more than 5% in early Thursday trade, compared with a drop of more than 2% in a European banking sector index.
Spanish banks are mainly retail lenders and have benefited from higher return on loans, overwhelmingly with floating rates, while keeping a lid on rates for savers.
In this context, Sabadell increased its customer spread in the third quarter to 2.99% from 2.89%.
That helped the bank offset subdued new mortgage lending in Spain, which fell 40% year-on-year in the quarter to 890 million euros ($938 million).
Its net interest income (NII), earnings on loans minus deposit costs, rose 29% year-on-year to 1.24 billion euros. Analysts had expected NII of 1.2 billion euros.
The bank also raised its NII growth guidance for this year to around 25% from a previous estimate of more than 20%.
Higher lending income also helped the bank lift its 2023 target for return-on-tangible equity ratio (ROTE), a measure of profitability, to around 11.5% from 10.5%. It expects ROTE to improve further in 2024 as well.
Sabadell finished the quarter with a ROTE of 11.59% after net profit rose 46% year-on-year to 464 million euros, beating the 383 million analysts expected.
JP Morgan welcomed the results, highlighting "good delivery on costs, solid asset quality as well as solid capital levels".
At Sabadell's British unit TSB, net profit fell 5.4% quarter-on-quarter on a standalone basis, while NII declined 1.8%. Customer spreads are under more strain in the UK following political pressure to boost rates for savers, as seen this week in the results of British bank Barclays (LON:BARC).
Sabadell also announced an interim dividend of 0.03 euros per share in cash, up 50% versus last year.
Its core tier-1 fully loaded capital ratio, the strictest measure of solvency, rose to 13.13% at end of September from 12.87% at the end of June.