Sabadell strikes cautious tone on lending income as deposit costs rise

By Jesús Aguado

MADRID, Oct 29 (Reuters) - Spanish bank Sabadell cut its lending income forecast for the year on Thursday, as higher interest rates also trigger a rise in deposit costs.

The country's fourth-largest bank by market value reported an 18% year-on-year rise in underlying profit in Q3 to €405 million, above forecasts of €375 million polled by Reuters.

Here are more details:

• The bank expects lending income to rise around 1% in 2026, down from the above-1% advance it previously forecast

• The bank said the cost of deposits would grow faster than anticipated in a higher interest rate environment after a rise of 6 basis points in the quarter

• Sabadell expects mid-single-digit year-on-year expansion in Q4 lending income

• The bank improved its recurrent return-on-tangible-equity ratio (ROTE), a measure of profitability, to 14.2% from 13.6% in the previous quarter and expects it to reach 14.5% by end-2026 and 16% in 2027

• Focus has shifted to its profitability outlook following the sale of its British unit TSB. Earlier this month, France's BPCE bought a 7% stake in Sabadell

• Sabadell's net interest income, or earnings on loans minus deposit costs, rose 2% year-on-year proforma in the quarter to €920 million ($1.03 billion), compared with analysts' forecasts of €923 million

• Customer spread rose 2 bps to 2.86% on still higher repricing in yields on loans. Sabadell expects customer margins to rise to 2.9% in Q4

• Total costs rose 1.6% year-on-year but fell 5.5% from the previous quarter after charges related to an early retirement plan were booked in the first half

• Sabadell expects recurring costs to grow around 2%, an improvement from the previously expected less than 3% for 2026($1 = 0.8959 euros)

(Reporting by Jesús Aguado; Editing by Emma Pinedo, David Latona and Harikrishnan Nair)