The Bank notes that this improved outlook reflects the possibility that the rating could also improve in the next 12 to 24 months if the Bank continues to “close its efficiency and profitability gap” with its peers, and by achieving returns that are “more in line” with the size of its franchise.
In its analysis, the credit rating agency points out that Sabadell has “successfully” completed its restructuring in Spain and that, since the launch of its strategic plan in mid-2021, it has increased its market share in the Spanish retail segment and has “significantly” reduced its cost base.
S&P also highlights the “turnaround” of its operations in the United Kingdom through TSB.
Just as for its European peers, S&P Global Ratings forecasts that interest rate rises will contribute to improving the Bank’s profitability, particularly in 2023. Specifically, it believes that the Bank’s return on equity (ROE) could reach between 8% and 8.5% over the next 12 to 24 months, even after the new temporary tax on banks is taken into account.
It does not rule out the possibility that asset quality could deteriorate in the coming quarters, above all because of its exposure to SMEs and the nature of the current economic slowdown, although it does think that this will be “manageable” for the Bank. However, it highlights the “clean up” of non-performing assets carried out by the Bank in recent years.