Sabadell Raises Underlying Profit 18% to €405 Million, Cuts Loan Revenue Growth Outlook
Key Facts
Spain’s Banco Sabadell raised underlying profit in the third quarter of 2026 by 18% year on year to €405 million, beating Reuters analysts’ expectations of €375 million. The results came on 29 October, the date of the bank’s meeting with analysts and investors and its press conference to announce third-quarter results, according to an earlier notice to the market. At the same time, the bank cut its estimate for loan revenue growth during the year to about 1%, from a previous forecast of growth above 1%. That puts quarterly profit growth alongside a slower outlook for lending revenue, as deposit costs rise. Net interest income, a key measure of lending revenue, increased on a comparable basis excluding TSB, but fell short of analysts’ expectations.
Net interest income was €920 million in the third quarter, up 2% year on year excluding TSB from the comparison, against analysts’ expectations of €923 million. The comparison shows that the bank grew this measure but did not reach the estimate issued before the results. According to Reuters, higher interest rates have begun to support loan margins on banks’ books, but that support is partly offset by higher payments to customers on deposits. This reflects a direct challenge to loan revenue growth: gains from loan pricing are offset by higher funding costs. Net interest income growth in the quarter therefore did not lead the bank to raise its full-year loan revenue outlook.
The bank said deposit costs would grow faster than expected in a higher interest rate environment, after rising 6 basis points in the third quarter. This change puts pressure on the net return from banking activity, as the cost of funds held by customers rises alongside interest rates. According to Reuters, Spanish banks are focused mainly on retail banking, and higher rates partly support margins on floating-rate loans. But repricing deposits erodes some of that effect, explaining the bank’s cautious guidance for loan revenue. An initial draft had attributed the performance to improved interest rate expectations, while the bank’s statement points to accelerating deposit costs as a headwind.
The comparison between recurring and reported profit presents a different picture depending on the basis used. Excluding TSB, recurring net profit rose 18% from the same period in 2025 to €405 million. On a reported attributable net profit basis, including TSB in the prior-year comparison, profit fell 2%, from €414 million in the third quarter of 2025 to €405 million in the third quarter of 2026. The different comparison bases mean growth in underlying profit does not equal year-on-year growth in reported net profit. Even so, underlying profit was above Reuters’ estimate of €375 million, unlike net interest income, which came in slightly below analysts’ expectations.
On returns, the recurring return on tangible equity rose to 14.2% in the third quarter from 13.6% in the previous quarter. The bank expects the ratio to reach 14.5% by the end of 2026 and 16% in 2027. These levels set out a gradual target for measuring the bank’s ability to generate returns on tangible shareholders’ equity, alongside its more conservative guidance for loan growth. In the fourth quarter, the bank expects loan revenue to grow at a mid-single-digit rate year on year, with the customer margin rising to 2.9%. These forecasts provide the closest measure of whether business growth will offset accelerating deposit costs.
The bank had notified the market on 27 October that it would hold a meeting with analysts and investors and a press conference on 29 October to announce third-quarter results. The results and guidance come as markets track the impact of interest rates on Spanish banks, with higher rates supporting margins on some loans while raising deposit costs in turn. In the fourth quarter, the market is watching for, according to the bank’s guidance, mid-single-digit growth in loan revenue and a customer margin of 2.9%. The bank also set the end of 2026 as its target date for a recurring return on tangible equity of 14.5%, with a target of 16% in 2027. The available facts did not include a share price or its movement after the announcement.