The interest rate increases are not only allowing banks to achieve record profits, but also to increase their quality capital with respect to the requirements of the European Central Bank (ECB). The so-called CET1 of banking, which is the relationship between these resources and the total value of assets, has been increasing in the first nine months of the year despite increasing risks associated with increases in interest rates and the distribution of dividends. The banks now exceed the ECB's demands by 47,569 million, compared to 47,025 million a year ago.
CET1 is a crucial variable to measure the health of banks and is the one that is tested in stress tests. At the end of the third quarter, almost all entities raised it due, among other things, to the increase in stock market value, which counts as quality capital. Santander reached a CET1 of 12.3%, two tenths more than a year ago and three points more than the 9.3% required by the ECB. BBVA increased it to 12.45%, compared to the 8.72% established by the supervisor and, in the case of CaixaBank, its 12.3% is now almost four points away from the 8.44% set by the authorities.
The meaning of these percentages is that banks now have greater margin to remunerate shareholders, increase their reserves or make acquisitions. Santander has an excess of 17,609 million, BBVA with 14,352 million, CaixaBank with 8,593 million, Sabadell with 3,403 million, Unicaja with 1,833 million and Bankinter with 1,780 million.
However, the banks' intention is to use only a portion of these resources for prudential reasons. The entities themselves usually take as a reference a CET1 of 12% below which it is better not to embark on operations. In the absence of consolidation movements in the sector, the majority is now dedicating part of the remainder to improving shareholder remuneration. They understand that they are trading at a discount, sometimes even below their book value, so they have made it a priority to increase the attractiveness of the stock: Santander has increased the percentage of profit it dedicates to dividends to 50%, BBVA has just obtained permission from the ECB to buy back shares for 1,000 million euros and CaixaBank is already executing a program of the same style, for 500 million.
In its latest Financial Stability Report, presented this Monday, the Bank of Spain found that banks had managed to raise their CET1 by 25 basis points, to an average of 13.1%. The risks have been increasing, but the value of good quality assets, including the shares on the stock market, increased by 4.6%, which offset the negative effect.
The result is banks with greater profits that, in addition, improve their solvency for the moment. The delinquency rate has remained stagnant at 3.5% for now and the results have been record-breaking. The six listed Spanish entities have jointly earned 19,761 million euros in the first nine months of the year, 23% more and almost as much as in all of 2022. Santander is the leader in profits, with 8,143 million, ahead of the 5,961 million from BBVA and 3,659 million from CaixaBank.
The Bank of Spain's forecast is that, despite the increase in interest rates, “a continuation of the growth path and the financial positioning of the banking sector would allow entities to generate capital organically in the period 2023-2025” . The CET1, it indicates, could grow by 140 basis points, up to 14.5%.
