Banco de Sabadell Delivers Strong Q1 2025 Results Amid Strategic Momentum

Banco de Sabadell, Spain’s third-largest retail bank by assets, has reported a robust set of Q1 2025 financial results, showcasing improved profitability, strong loan growth, and enhanced capital strength. The bank’s net profit surged 58.6% year-on-year to €489 million, driven by disciplined cost management, lower provisions, and a revitalized TSB subsidiary in the UK. These results underscore the effectiveness of Sabadell’s strategy to prioritize capital returns and organic growth, even as European banks face macroeconomic headwinds.

Profit Surge Driven by Operational Leverage and TSB Gains

The bank’s Return on Tangible Equity (RoTE) rose to 15.0% from 12.2% a year earlier, with recurrent RoTE at 14.1%, excluding one-off items. This improvement reflects the benefits of Sabadell’s cost discipline: total costs grew just 0.9% year-on-year, while revenue remained stable, leading to a cost-to-income ratio of 46.2%, a 1.4 percentage point improvement. The absence of Spain’s banking tax (which reduced Q1 2024 costs) also aided margins, widening operating jaws (revenue minus cost growth) by 13% year-on-year.

TSB, acquired in 2021, delivered a standout performance, with its standalone net profit jumping 96.1% to £74 million (€94 million), fueled by cost control and a £35 million one-off recovery from third-party indemnities. TSB’s mortgage lending grew 12% year-on-year, contributing to its £1.508 billion in new mortgages, a sign of resilient UK housing demand.

Loan Growth and Asset Quality Highlight Strategic Focus

Sabadell’s performing loans rose 5.0% year-on-year to €158.3 billion, with standout growth in Spanish mortgages (+81% to €1.645 billion) and consumer loans (+26% to €698 million). This expansion reflects strong demand in Spain’s economy, where the bank holds a dominant retail presence. Meanwhile, card turnover hit €6.06 billion, a 6% increase, signaling continued customer engagement.

Asset quality metrics improved significantly: the non-performing loan (NPL) ratio fell to 2.67%, down from 3.46% in Q1 2024, and non-performing assets dropped 5.0% quarter-on-quarter. The bank’s NPL coverage ratio rose to 62.7%, bolstered by improved risk management and lower legacy exposures.

Capital and Liquidity: A Fortress Balance Sheet

Sabadell’s fully-loaded CET1 ratio strengthened to 13.31%, surpassing its 13% target and up 103 basis points year-on-year. This robust capital position allows the bank to pursue shareholder returns aggressively: it raised its 2025 remuneration forecast by €100 million, totaling €1.3 billion (including dividends and buybacks). Combined with 2024’s €2.1 billion, this marks a €3.4 billion two-year return commitment, a critical signal of confidence in its financial health.

Liquidity metrics also remain strong, with the Liquidity Coverage Ratio (LCR) at 197%, well above the 100% regulatory minimum.

Challenges and the Road Ahead

While Sabadell’s results are impressive, risks persist. The core banking revenue dipped 0.7% year-on-year to €1.56 billion, due to a 1.3% decline in net interest income as loan growth was partially offset by lower rates. Additionally, Spain’s economic slowdown and potential UK macro risks could test future performance.

Yet Sabadell’s strategy appears well-calibrated. The bank is executing a disciplined €1,002 million share buyback program, with 21% completed to date, signaling its ability to return capital without compromising growth. Management’s focus on cost control and its strong UK subsidiary provide a dual engine for resilience.

Conclusion: A Bank to Watch in a Volatile Landscape

Banco de Sabadell’s Q1 results are a testament to its ability to navigate a challenging environment. With a CET1 ratio above 13%, a revitalized TSB, and a two-year shareholder return plan exceeding €3 billion, the bank is positioning itself as a leader in Spanish banking. While macro risks linger, Sabadell’s improved capitalization, strong loan growth, and disciplined execution suggest it is poised to outperform peers in the medium term.

Investors should monitor loan growth trends in Spain and the UK, the trajectory of Sabadell’s CET1 ratio, and the execution of its buyback plan. For now, the numbers paint a compelling picture: a bank turning strategy into results.