Coverage initiation: Bankinter

We are initiating coverage of Bankinter which is the Spain’s sixth-largest bank. It was founded in 1965 as an industrial bank through a joint venture by Banco de Santander and Bank of America. It was listed on the Madrid stock exchange in 1972, at which time the bank became fully independent of its founders and transformed itself into a commercial bank.

BKT began to expand away from Spain in 2012 with the set-up of a new bank in Luxembourg in order to secure deposit outflows during the Euro crisis. Real international diversification began in 2016 with the acquisition of Barclays’ Portuguese retail banking (acquired for a €100m consideration) and insurance (acquired for a €75m consideration by Bankinter Vida jointly held with Mapfre) operations. Lastly, in 2019, BKT expanded into Ireland following the acquisition of EVO Banco’s Spanish digital banking operations and the Irish consumer finance subsidiary Avantcard.

In 2021, the group spun off its successful insurance venture Linea Directa, founded in 1995, retaining a 17.4% stake, as the fully independent company had become too large.

As a niche player, the group’s low domestic market shares (around 4% on deposits and 5% on loans) understate its real position on the targeted customer segment, namely mid-sized corporations and affluent households where it enjoys critical size and to which it offers a full range of specialised financial services including personal banking, private banking, consumer finance, digital banking, corporate banking, brokerage, investment banking and international banking.

In 2020, the group showed impressive business momentum in spite of the pandemic, as it continued to enjoy market share gains driven by the accelerated consolidation of the market. Coupled with margin resilience and cost control, this enabled it to grow its pre-provision results by more than 4%. In 2021, the top line is expected to be supported by ongoing net interest (low single-digit) and fee income (mid-single-digit) expansion. On the other hand, loan impairments, which more than doubled in 2020 driven by COVID-19-related extra provisions (and accessorily the end of releases in Portugal), are expected to normalise only very progressively. The divestment of the highly profitable Linea will mechanically weigh on the group’s structural ROE. Management does not expect the latter to recover above 10% (based on an 11.5%-12% CET1) before 2023, when it expects net profit to exceed €550m, supported by the normalisation of the cost of risk and the alignment of the profitability of the recently-acquired operations with Spanish standards.

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