• Despite solid profitability trends, banking conditions could become somewhat more challenging
  • Sustainable loan growth, higher funding costs and credit risks will be the primary areas of concern
  • Customer service, digital tools and economies of scale are key for success

Faster economic growth, interest rate hikes and a lower corporate tax rate proved very favorable for commercial banks in 2018. Loan growth was stable and net interest margins increased, while provisions for loan losses and corporate tax expenses declined. As a result, net income increased by 45% compared to 2017, return on average assets reached almost 1.35%, the highest since 2003, and return on average equity reached 11.75%, the highest since 2006. The primary challenge that banks faced last year was the slowdown in deposit growth, which reflected an increase in the opportunity cost to hold some types of deposits, particularly in non-time instruments.


Average loans and leases in bank credit increased by 4.1% in 2018, following an increase of 4.0% in 2017. Loan growth has been strengthening after bottoming out at the end of 2017, supported by strong economic growth. We expect this momentum to continue in the first half of 2019, after which loan growth should moderate. Loan and lease balances will increase 5.4% in 2019 and 4.8% in 2020. The largest contribution to growth in 2019 will come from commercial and industrial (C&I) loans, which will be driven by solid business investment, expected to remain firm at least during the first half of 2019.

While residential real estate loans increased only 2.3% in 2018, this figure still represents the second strongest showing since the Great Recession. Growth was higher in the first half of the year, when the housing market was still in a relatively strong expansion mode, but slowed in the second half due to rising mortgage interest rates. However, with mortgage interest rates declining after a peak in November, the housing market activity has shown signs of recovery. We expect mortgage purchase originations to continue increasing, supported by ongoing home price gains, and the level of existing home sales and the volume of originations for refinance to stabilize. This will result in an increase in residential real estate loans on the banks’ balance sheets of 2.7% in 2019.

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This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

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