Bankinter's Resilient Performance: Can Lending Income Stay Strong Amid Rate Cuts?

Bankinter, Spain’s fifth-largest listed bank by assets, has delivered a strong start to 2025, defying market skepticism with a 35% year-on-year surge in net profit to €270 million in the first quarter. While the European banking sector continues to grapple with the dual pressures of narrowing interest rate margins and regulatory uncertainty, Bankinter’s results highlight its ability to navigate these challenges through strategic initiatives, cost discipline, and geographic diversification.

The bank’s outperformance was fueled by a combination of factors: the absence of a one-time banking tax charge (which dragged down Q1 2024 profits by €95 million), a 13% jump in fee income, and 5% YoY loan growth—the latter driven by robust demand in Spain’s retail lending market. However, the key question for investors is whether Bankinter can sustain lending income amid the European Central Bank’s (ECB) ongoing rate cuts, which have squeezed net interest margins across the continent.

The NII Dilemma: Pressure and Resilience

Bankinter’s net interest income (NII) dipped 6% YoY to €541 million in Q1 2025, reflecting the broader industry challenge of compressing margins. Customer spreads narrowed to 2.71%, down from 2.74% in late 2024, as loan yields fell faster than deposit costs. While this trend poses a short-term headwind, Chief Financial Officer Jacobo Diaz emphasized that lower deposit costs (down 16 basis points) and a projected mid-single-digit loan growth could stabilize NII in the coming quarters.

The bank’s confidence stems from its diversified revenue streams. Fee income now accounts for 53% of total revenue, with management, brokerage, and insurance services all contributing to a more stable income mix. This diversification is critical: while NII faces macroeconomic headwinds, fee income has grown at a 13% annual clip, cushioning the bottom line.

Strategic Leverage: Digital Expansion and Geopolitical Diversification

Bankinter’s long-term growth hinges on two pillars: digital innovation in Spain and strategic international expansion. Domestically, the bank is doubling down on its EVO digital banking platform, which has already attracted over 1 million customers since its launch in 2020. This initiative aims to capture younger, tech-savvy borrowers while reducing operational costs—a key driver of its industry-leading 36.7% cost-to-income ratio.

Abroad, the bank is focusing on Ireland and Portugal. In Ireland, where it operates as Bankinter Ireland, the priority is deposit gathering—a shrewd move given the country’s high savings rates. Meanwhile, its joint venture with Portugal’s Sonae aims to leverage IT synergies and scale operations in a market with a smaller banking footprint. These moves not only diversify revenue but also mitigate reliance on Spain’s increasingly competitive retail lending space.

Capital Strength and Risk Management

Bankinter’s robust balance sheet provides a safety net. Its CET1 ratio of 12.35% comfortably exceeds regulatory requirements, and its non-performing loan (NPL) ratio of 2.16% remains among the lowest in Europe. These metrics, coupled with a return on tangible equity (ROTE) of 19.9%, underscore the bank’s operational resilience.

The Outlook: Navigating Uncertainty

While Bankinter’s 2025 net profit target of €1 billion remains on track, risks persist. ECB rate cuts could further compress margins, and the bank’s reliance on Spanish retail lending exposes it to local economic cycles. However, management’s focus on cost controls, fee income growth, and international diversification provides a counterbalance.

Conclusion: A Bank Built for Volatility

Bankinter’s Q1 results demonstrate that disciplined execution and strategic foresight can offset macroeconomic headwinds. With fee income diversifying revenue, loan growth in resilient markets, and a fortress balance sheet, the bank is well-positioned to sustain its profit target. While ECB policy remains a wildcard, the mid-single-digit loan growth guidance, 36.7% efficiency ratio, and 19.9% ROTE suggest that even in a low-rate environment, Bankinter can deliver steady returns.

For investors, the stock’s current valuation—trading at a 0.9x P/B ratio, below its five-year average—offers a margin of safety. If management can execute its digital and geographic growth plans while containing deposit costs, Bankinter could outperform peers in an era where stability is scarce. The question isn’t whether lending income will face challenges, but whether Bankinter’s strategy can turn those challenges into opportunities—a bet that, so far, is paying off.