The bank said it expected low-single-digit lending income growth this year, down from a 24% rise in 2023.
Spanish banks have benefited from higher returns on loans, while keeping a lid on rates paid to savers. However, central bankers have been warning that deposit costs would gradually pick up and hit margins.
The bank's customer spread remained unchanged at 2.99% in the fourth quarter compared to the previous quarter due to higher deposit costs at its British unit TSB, where lending income fell 10% year-on-year.
Spanish broker Renta 4 described as prudent the bank's 2024 outlook, which also included a mid-single digit decline in fees.
At 0855 GMT, shares in Sabadell were down 3.7% compared to a broadly steady performance of Madrid's benchmark index Ibex-35 (.IBEX).
Net interest income - earnings on loans minus deposit costs - rose 12.4% year-on-year in the quarter to 1.21 billion euros ($1.30 billion), slightly below the 1.24 billion euros expected by analysts.
But investors are already looking for signs if the boost to lenders from higher rates has peaked.
In the fourth quarter, Sabadell's net interest income fell 2.5% compared to the third quarter following a Euribor 12-month rates decline.
Net profit more than doubled in the fourth quarter to 304 million euros compared with the same period in 2022, but fell 35% from the third quarter due one-off charges and lower borrowing rates in the final quarter.
For the whole of 2023, the bank's net profit rose 55% to a record 1.33 billion euros thanks to lower provisions.
This helped improve Sabadell's return-on-tangible equity ratio, a measure of profitability, by 373 basis points in the year to 11.5% at the end of 2023. For 2024, the lender targets the ratio at above 11.5%.
The bank's board approved a new share buyback programme of 340 million euros and a final dividend of 0.03 euros per share against 2023 earnings.
($1 = 0.9273 euros)
