Spanish banks boost profitability and solvency in H1 2025 despite income shifts
The Spanish banking sector significantly improved its profitability and solvency in the first half of 2025. Consolidated profit rose 10%, with ROA reaching 0.97% and ROE increasing to 14.6%, while capital ratios also strengthened.
Profitability defies net interest income decline
The Spanish banking sector's consolidated profit increased by 10% in the first half of 2025 compared to the same period in 2024. This led to a return on assets (ROA) of 0.97% and a return on equity (ROE) of 14.6%, a 0.6 percentage point rise.
This improvement was widespread across all banks, with Q3 earnings reports from major listed banks indicating a continued upward trend.
Despite this, net interest income, previously the main driver of profitability since 2021, declined due to lower net interest margins amid monetary policy easing.
However, this fall was offset by strong performance in net fee and commission income, lower tax expenses, and other operating income, partly due to smaller hyperinflation adjustments in Argentina and Türkiye.
Impairment losses remained stable.
Robust capital and international footprint
The Common Equity Tier 1 (CET1) capital ratio for Spanish banks rose by 0.5 percentage points year-on-year to 13.8% in June 2025, driven by over 5% growth in CET1 capital.
The leverage ratio also increased by 12 basis points to 5.8% over the same period.
Spanish banks' ROA of 1% in June 2025 outperformed the European average of 0.75%, according to EBA data.
Geographically, profitability improvements have mainly arisen in Spain and Mexico, though Mexico's momentum is now waning.
The non-bank financial intermediary sector, however, exhibits global vulnerabilities in leverage and liquidity, potentially amplifying financing shocks.
Profitability's fragile foundation
Spanish banks' impressive H1 profitability relies on temporary tailwinds, masking a concerning decline in net interest income.
While solvency remains robust, the sustainability of these earnings in a monetary easing cycle is questionable.
This calls for vigilance on underlying trends rather than celebrating headline figures.