November 27, 2018 / 7:20 AM / a year ago

UPDATE 2-Caixabank to cut a fifth of Spanish branches to boost profitability

* Aims for a ROTE target of above 12 percent by 2021

* Expects CET-1 fully loaded capital ratio of around 12 pct

* Sees accumulated annual revenue growth of 5 pct in plan (Recasts story and gives breakdown on 2019-2021 strategic plan)

By Jesús Aguado

MADRID, Nov 27 (Reuters) - Caixabank plans to cut almost a fifth of its branches in Spain over the next three years in a drive to boost profitability while pursuing its digital transformation.

As part of its 2019-2021 strategic plan, the Spanish lender said on Tuesday it expected to cut the number of branches in its main market by 821 to 3,640 by 2021.

The bank, which employs around 32,600 people in Spain and also has operations in Portugal, said the plan would lead to job losses, but did not elaborate.

Caixabank said it aimed to increase its return on tangible equity ratio (ROTE) to above 12 percent by 2021 from 9.4 percent at the end of September, buoyed by a more profitable insurance and consumer lending business.

Spanish banks are struggling to lift earnings from mortgage loans as interest rates hover at historic lows and are battling over more profitable household lending.

Caixabank cut its original 2018 profitability target of 12-14 percent at the beginning of 2017 to 9-11 percent. At that time, it forecast ROTE at just above 10 percent by 2021.

Its shares, down about 4.5 percent this year, were little changed at 0945 GMT.

“All in all, we believe this plan, despite looking a bit conservative, should allow us to maintain our positive stance on the bank and our Outperform rating,” BBVA analysts said in a note, describing the plan as “fairly credible”.

Caixabank has relied heavily in the past on hefty dividends and income from its holdings, but changed strategy after it announced in September it was selling its 9.4 percent stake in oil major Repsol.

The lender has been one of the most acquisitive in a consolidating Spanish banking industry, taking over BPI in February 2017 in a bid to boost revenue.

It forecast BPI would achieve accumulated annual revenue growth of 7 percent under its plan.


Underpinned by around 2 percent economic growth in both Spain and Portugal, Caixabank said it was aiming for compound annual revenue growth (CAGR) of around 5 percent or more over the next three years, outpacing a roughly 3 percent forecast increase in recurring expenses.

The bank said revenues would be driven by an increase of around 5 percent or more in net interest income (NII) - the difference between what banks earn on loans and pays on deposits - after just 0.7 percent growth in the third quarter.

It also sees higher commission and fees, and its insurance income growing at an accumulated annual rate of 9-10 percent.

The bank aims to reduce non-performing assets by around 5 billion euros ($5.7 billion) from the end of September to 7 billion euros by 2021, and non-performing loans to below 3 percent of the total from 5.1 percent now.

It plans to end 2021 with a core-tier 1 fully-loaded ratio, the strictest measure of capital, of around 12 percent, versus 11.4 percent at the end of September.

It aims to continue paying out more than 50 percent of profits in cash dividends.

$1 = 0.8841 euros Reporting by Jesús Aguado; Edited by Paul Day and Mark Potter

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