UPDATE 2-Sabadell expects cost savings and business loans to drive profitability
* The Bank aims for additional annual cost reductions of 100 million euros in Spain
* Sabadell sees a ROTE of over 6% by 2023
* See loans grow annually by more than 2% in a three-year strategy
* See low single-digit growth in NIIs in strategic plan
* Expect UK unit TSB to achieve ROTE of over 6% by 2023 (give forecast and units breakdown, share reaction)
MADRID, May 28 (Reuters) – Spain’s Sabadell said on Friday he expected additional cost savings and income growth from a push into business and consumer lending in Spain to boost profitability within the framework of its new three-year strategic plan.
Banks across Europe are struggling to keep up with historically low interest rates, and the economic slowdown triggered by the COVID-19 pandemic has forced them to focus on further cost cuts.
Sabadell said he expects additional annual cost savings of around 100 million euros ($ 122 million) in his home market, which he expects to have completed by the first quarter. from 2022.
The lender said the savings would include branch closures and staff costs. A source familiar with the matter said the bank’s plan would potentially include a further round of layoffs.
Sabadell declined to comment.
The bank has already generated around 141 million euros in cost savings per year after 1,817 staff reductions in 2020.
Spain’s fourth-largest bank in terms of assets said it aims to increase its return on tangible equity (ROTE), a measure of profitability, to more than 6% by the end of 2023, from 1.25 % currently.
Although the bank has not given a specific figure for 2023, analysts expect ROTE’s target to translate into a net profit that year of between € 625 million and € 670 million, compared with only 2 million euros in 2020.
Sabadell’s failure to merge with BBVA last year has added to the pressure on the bank, with investors worried about its ability to handle an expected rise in bad loans on its own.
Sabadell said on Friday he expected his 2021-2023 plan to benefit from an economic recovery in Spain and Britain, tighter control of the pandemic and a boost in EU funds .
Against this backdrop, he aimed for his loan portfolio to achieve a compound annual growth rate (CAGR) of over 2% over the period, which he said should also allow for low single-digit cumulative growth in income. net of interest (RNI).
Shares of Sabadell were down 1% to 0.6680 euros at 7:14 a.m. GMT after rising more than 90% so far this year.
Spanish broker Alantra said NII’s growth forecast seemed overly optimistic and believed the bank was trying to buy time with the plan, with “the intention of trying to sell (UK unit) TSB over time and / or possibly resorting to mergers and acquisitions ”.
The bank, which is undergoing a technological transformation, said it expected to benefit from a shift to a fully digital approach in its consumer and payments businesses.
Sabadell said he expects TSB, which in the first quarter returned to profit, to achieve a ROTE of over 6% by 2023, supported by mortgage lending growth and further reduction. costs. TSB recorded a loss of 220 million euros in 2020.
He said the TSB was on track to achieve £ 100million in total savings by 2023.
Sabadell’s acquisition of TSB in 2015 ran into problems when IT problems drove costs up in 2018. Although Sabadell had planned to sell TSB, its new CEO Cesar Gonzalez-Bueno froze the process for now.
$ 1 = 0.8202 euros Report by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro, Robert Birsel and Jan Harvey