Banco de Sabadell S.A.

The positive outlook indicates that we could raise our long-term rating on the bank over the next 18-24 months if industry risks for banks operating in Spain were to ease and, at the same time, Sabadell strengthens its financial ratios further. We could raise the rating on Sabadell if it improved its financials, especially its profitability and efficiency, and achieved levels closer to those of higher-rated peers. An upgrade would also depend on industry risks easing for banks operating in Spain, Sabadell's asset quality not deteriorating, and it preserving its risk profile. We also assume the bank will remain eligible to benefit from one notch of ALAC uplift because we forecast that it will maintain a buffer of subordinated bail-inable

...Sabadell's profitability and efficiency now aligns with the depth of its franchise and that of peers. Sabadell reported record high profits in 2023, and the improvement has remained throughout the first nine months of 2024, with Sabadell's return on tangible equity reaching 13.2% (as reported) at end-September 2024. While high interest rates have particularly bolstered earnings, the bank has also benefited from streamlining its Spanish business and turning around its U.K. operations. We anticipate that Sabadell will be able to preserve solid profitability and efficiency over 2025-2026, as some recovery in fees and the bank's measures to contain operating costs will partly compensate for lower interest rates ahead, while credit costs should remain relatively unchanged. Overall, we anticipate its return on...

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