Higher-than-expected interest rates have boosted lending income at Spanish banks, which have benefited from charging customers higher costs for floating rate loans, while keeping a lid on rates for savers.
Sabadell said it now expects its lending income to grow around 3% in 2024 and to remain stable in 2025. In February, the lender had forecast a low-single-digit growth this year.
At 0748 GMT, shares in Sabadell rose more than 9% compared to a flattish performance in Spain's leading blue-chip index Ibex-35 (.IBEX).
Shares were also supported by the execution of an already announced 340 million euro share buyback programme.
The customer spread, or the difference between returns on loans and cost of deposits, rose 10 basis points in the quarter compared to the previous quarter.
JP Morgan said that "solid NII progression was helped by improving customer margins, better than expected delivery on fees and cost of risk coming in lower than expected."
Net interest income (NII), the difference between earnings on loans minus deposit costs, in the first quarter rose 11.9% year-on-year to 1.23 billion euros, slightly higher than analysts' forecasts, and rose 1.7% against the previous quarter.
Net profit rose 50% to 308 million euros in the January-March period, well above the 233 million euros analysts polled by Reuters expected.
Lower provisions and higher trading gains also helped offset a decline in overall loans and the impact of a 192 million euro ($205 million) windfall tax.
Higher margins helped the bank improve its return-on-tangible equity (ROTE), a measure of profitability, to 12.2% from 11.49% at the end of 2023. In that context, it forecast ROTE to end above 12% in 2024 from a previous goal of above 11.5%.
At its British unit, net profit on a standalone basis fell 31% to 38 million pounds following a decline of 11% in lending income in a highly competitive mortgage market in the UK.
Sabadell previously put plans to sell TSB on hold until it turns around the British unit.
