Bankinter (SP: BKT)
- Jean-Louis Hua
- Apr 15, 2025
- 6 min read
Updated: Aug 1, 2025
April 15, 2025 • Banks • SELL RECOMMENDATION
Premium Valuation Challenged by Funding Pressures and Signs of Riskier Lending
Bankinter is widely viewed as a high-quality Spanish retail bank, consistently praised for its prudent credit culture, strong digital execution, and historically clean balance sheet. This “premium” status – reinforced by excellent performance in ECB/EBA stress tests and consistent return on capital – has allowed the bank to have one of the highest valuations in the sector (P/TBV 1.46x for 2025E)
However, I believe the market may be overly confident in this premium narrative, overlooking subtle yet material shifts in Bankinter’s fundamentals. When interest rates surged in 2022, the bank pursued loan growth aggressively to gain market share but struggled to grow deposits in parallel, leading to a weakening of its funding profile and potentially weakening its risk positioning. This funding-growth mismatch is now starting to materialise, notably through prolonged higher cost of funding and early signs of a shift toward riskier exposures
The current high valuation leaves little room for disappointment. I see asymmetric downside risk if the market receives further confirmation of deeper funding challenges or a visible shift in the bank’s risk profile – both of which could undermine the premium narrative and lead to a meaningful derating, whereas positive surprises may have limited impact, given the already elevated valuation
1. Key Fundamentals Supporting the Premium Valuation
Supportive Fundamentals (+) | Underlying Vulnerabilities (–) |
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2. DOWNSIDE CATALYST #1 – Mounting Deposit Pressure: Slow Growth and Rate Stickiness
Bankinter is facing structural challenges on the deposit side that are beginning to weigh on its premium profile. While the bank has grown its loan book aggressively over the past quarters, +3.9% in 2024, deposit growth has not followed. Retail deposit volumes increased by only +1.3% in 2024 – well below selected peers at +5.5% – forcing the bank to rely on more expensive institutional funding to close the gap: wholesale funding increased from 15% to 20% of total funds in 2024, costing 4.0% in 2024 (vs. 1.4% for customer deposits)
At the same time, Bankinter may also struggle to reprice its deposits downward despite the ongoing monetary easing cycle. Several structural factors explain this:
Low deposit stickiness, due to a more agile, digitally active client base. Compared to peers, Bankinter has seen much higher shifts from sight to term deposits (from 91% in 2022 to 71% in 2023 vs. selected peers1 from 92% to 87%)
High reliance on term deposits, representing c.30% of total customer deposits, the highest in Spain. Management aims to reduce this to 15%, but progress has been minimal despite six consecutive quarters of declining policy rates
If Bankinter delays the reduction of term deposits – reaching its 15% target over 24 months instead of 12 – the impact could be material, up to c.100bps downside on 2025E ROTE (considering term deposits of €56bn, an average cost of 200bps, an estimated c.€950m net income and 16.5% ROTE for 2025E), with a similar impact likely on 2026E ROTE
Finally, a recent increase in the cost of risk – from 34bps in 2022 to 39bps in 2024 – might be an early signal of deteriorating asset quality, which could further pressure funding costs if investor confidence weakens
I believe the market underestimates the risk that Bankinter will fail to reduce deposit costs as quickly as forecasted – a risk amplified by management’s optimistic guidance and the stock’s recent strong momentum
3. DOWNSIDE CATALYST #2 – Balance Sheet Expansion and Emerging Signs of Risk Shift
Between 2022 and 2024, Bankinter posted rapid loan book growth (+3.6% CAGR 2022–2024), outpacing its peers1 (+0.0%). This growth did not come at the expense of loan yields, suggesting that it was not driven by price competition. While some of this may reflect superior commercial execution, it may also indicate a greater willingness to underwrite riskier loans
Several indicators support this hypothesis:
Cost of risk rose from 34bps to 39bps over the period – a slight uptick that may reflect a shift toward riskier exposures
RWA as a % of total assets climbed from 33.6% to 37.9%, suggesting a higher share of risk-intensive exposures
Coverage ratio increased from 64% to 69% between Q1 and Q4 2024 – possibly reflecting internal anticipation of asset quality deterioration
These developments may point to a subtle but meaningful shift away from Bankinter’s historically conservative stance, potentially undermining the perception of the bank as a premium, low-risk franchise
4. Key Risks & Alternative Scenarios
Tariff-related upside risk: A reduction in trade tensions driven by lower volatility around Trump’s tariff policies could ease macro uncertainty, support sentiment on Spanish industrials, and lift sector valuations
Stronger-than-expected macro environment in Spain: A continued positive economic surprise could support loan demand and asset quality across the sector, boosting earnings and offsetting balance sheet concerns
Faster deposit repricing: If Bankinter successfully reduces its term deposit share more quickly – or retains deposit volume while lowering rates – the negative impact on ROTE could be reduced
Slower-than-expected rate cuts: Bankinter’s high sensitivity to NII could become a tailwind if policy rates remain elevated longer than anticipated, helping to sustain margins and delaying deposit repricing pressures
Investor confidence remains anchored: The bank's long-standing premium perception may persist, even in the face of weaker fundamentals, due to its reputation, conservative branding, and past performance
5. Valuation Leaves Little Room for Disappointment
Bankinter currently trades at 1.46x 2025E TBV – highest multiples among Spanish banks – for an expected ROTE of 16.5%. This valuation reflects a strong premium narrative supported by its historical performance, conservative image, and perceived balance sheet strength
With the stock up +33% YTD (vs. EURO STOXX® Banks at +20%) and c.23% since Q4 results, market expectations appear elevated. A derating back toward a 1.1-1.2x TBV range would imply c.15-25% downside from current levels if investor perception of its premium profile weakens, ROTE guidance proves optimistic or deposit costs remain sticky
6. What to Watch in Upcoming Results (24/04/2025)
Funding structure: What share of total funding still comes from institutional sources?
Term deposit mix: Are they showing credible progress toward reducing the 30% share? What is the updated timeline toward the 15% target?
Deposit beta: Is the cost of customer deposits declining in line with ECB cuts?
Asset quality signals: Is the CoR continuing to increase? Any early signs of NPL or Stage 2 deterioration or pressure on coverage ratios?
RWA growth: Is the increase in RWA/Total Assets continuing or stabilising?
Management tone: Is there any change in how management presents risk positioning or deposit strategy?
SELL RECOMMENDATION – Repricing Likely if Deposit and Risk Pressures Persist
Bankinter continues to trade at one of the highest valuations in the European banking sector, supported by a strong historical track record and market confidence in its premium positioning. However, recent signs point to emerging challenges: persistent pressure on deposit costs, delayed execution on repricing targets, and subtle shifts in risk appetite reflected in the balance sheet
I see asymmetric downside risk if the market receives further confirmation of these structural weaknesses, which could trigger a reassessment of the premium narrative and lead to a meaningful derating
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