Bankinter: nimble Spanish bank shows growth still possible

A common perception in European banking is that healthy returns on capital require large scale. Results from Spain’s Bankinter on Thursday highlight at least one exception to the rule. Net profits at €82.5m in the fourth quarter comfortably beat expectations. Near double-digit returns on tangible equity, excluding one-offs, for the full year rank alongside the continent’s best.

In Spain’s overbanked sector, with an excess of branches, good things can still come in small packages. Bankinter’s focus on wealthier customers keeps its profitability up and provides a means for growth. Investor optimism is reflected in shares trading close to book value. That is rare for any European bank let alone for one focused on the mundane business of domestic savings and loans.

Loan growth has driven up interest income. Bankinter’s total loan book grew 6 per cent last year helped by its best year ever in mortgages. These grew 8.6 per cent in Spain — responsible for roughly 90 per cent of its income — compared with the national average of just 1.3 per cent.

Bankinter punches above its weight. It holds nearly a tenth of the new lending share there though its share of overall lending is half that. It does well in other profitable areas of consumer lending such as credit cards.

Its market share gains come at the expense of rivals such as Sabadell, seen as a buyout target. Bankinter’s net fee income rose more than a fifth last year to €603m, partly due to its ability to convert excess customer deposits accumulated during the pandemic into wealth products. Fees from asset management rose 30 per cent to €204m. One-off effects from spinning off insurance business Línea Directa also boosted profits.

Understandably, Bankinter’s shares have risen 61 per cent since the start of 2021, beating an index of local peers by more than a fifth. Management targets for return on equity of more than 10 per cent this year echo investors’ enthusiasm.

Rising interest rates, excess deposits for asset management and market share gains in lending offer more boosts to come. Bankinter supports the case that nimbleness matches brute size in European banking.