February 23, 2018 / 9:58 AM / a month ago

Spain's Sabadell sees profitability rising 80 pct in three years

MADRID (Reuters) - Spain’s Banco Sabadell (SABE.MC) aims to increase its profitability by almost 80 percent over the next three years, buoyed a gentle rise in interest rates and steady growth in banking fees and lending income.

Spain’s fifth-biggest lender said on Friday it planned to end 2020 with a return on tangible equity ratio (ROTE) of around 13 percent, up from 7.27 percent at the end of 2017.

Over 2017-2020, Sabadell expects net interest income - profit from loans minus funding costs - to achieve a compound annual growth rate of more than 4 percent.

Spanish banks have been struggling to lift earnings from loans as interest rates hover at historic lows and increasing competition erodes margins. To offset pressure at home, they have been expanding abroad in search of higher revenues, and cutting costs.

On Friday, Sabadell said it was aiming for a cost-to-income ratio of around 47 percent in 2020, down from more than 50 percent in 2017.

Underpinned by a positive global economic outlook, it expects group fees and commissions to achieve an accumulated annual growth of more than 6.5 percent in the next three years.

In 2015, Sabadell bought British bank TSB, which it expects to migrate off previous owner Lloyds’ platform by the end of the first quarter of this year.

Since the beginning of the year, shares in Sabadell have risen 9.5 percent. On Friday, they were down 0.5 percent.

Sabadell, which reduced its non-performing assets by 3.4 billion euros (3.00 billion pounds)in 2017 to 15.2 billion euros, said it expected to reduce those assets by more than 6 billion euros by 2020.

    The European Central Bank is working on new guidelines for lenders to reduce bad loans.

    A solid economic recovery in Spain and a property rebound has allowed most of the country’s banks to tackle toxic balance sheets faster than peers in Italy, boosting investor confidence.

    Sabadell said it expected its bad loan ratio to fall to less than 3 percent from 5.14 percent in 2017.

    It said it would finish 2020 with core-tier 1 fully-loaded ratio, the strictest measure of capital, of around 12.5 percent, compared with 12 percent at the end of 2017, with the full implementation of the new accounting standards IFRS9.

    The lender also said its dividend payout would be around 50 percent of profits by 2020.

    Reporting by Jesús Aguado; Editing by Paul Day and Mark Potter

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