Spain's Banco Sabadell sees return to profit growth in 2017

[MADRID] Spain's Banco Sabadell expects a return to profit growth in 2017 after earnings stalled last year due to sterling's depreciation and charges related to mis-sold mortgage contracts, it said on Tuesday.

Spain's fifth biggest bank estimated net profit of 800 million euros (S$1.21 billion) in 2017, a 13 per cent rise compared with 2016, underpinned by stable lending income which would allow it to improve its profitability over the next few years.

In a strategic update, Sabadell described 2017 as a transitional year in which it wanted to focus on containing costs, including the closure of 250 Spanish branches, and finalise the integration of its British unit TSB.

Sabadell said it expected the British economy, where it makes around a quarter of its profits through TSB which it bought in 2015, to perform better than initially expected this year after Britain's vote to leave the European Union last June.

Sabadell does not expect sterling to continue to depreciate beyond its near three-decade low, although volatility in Britain would continue, CEO Jaime Guardiola told analysts on a conference call.

Sterling's fall helped trim Sabadell's 2016 profit to a worse-than-expected 710 million euros, flat from the previous year after it booked a 490 million euro charge from a European court ruling in December on disputed mortgage clauses.

For 2017, Sabadell said it expected net interest income - a measure of earnings on lending minus deposit costs and a key profit driver for retail banks - to grow 1 per cent on the back of lower funding costs and higher interest rates in Britain.

Due to these better business conditions, Sabadell said it expected to double its profitability in the next few years, with its return on equity ratio (ROE) hitting double digits by 2020 from 5.84 per cent in 2016.

REUTERS