By Jesús Aguado

MADRID (Reuters – Spain’s Sabadell hit its profitability target Thursday, more than 6% ahead of schedule. This was due to lower costs and provisions as well as a positive contribution by its British subsidiary TSB.

In terms of total assets, the fourth largest bank reported a net profit in January and March of 213 millions euros (224.5 million). Reuters polled analysts expecting a net profit in the range of 166 millions euros.

As Sabadell had recovered from the COVID-19 pandemic, loan loss provisions for the quarter decreased 36%. The quarter ended with a 6.5% return of tangible equity (ROTE) up from 5.05% the prior quarter.

Spanish lenders already expected that they would have a ROTE higher than 6% in 2022. That was a year ahead of what the strategy had planned for.

Cesar Gonzalez Bueno, Sabadell’s Chief Executive Officer stated in a statement that “we are starting the new year by improving performance across all margins” and adding that “we are continuing to decrease costs. This is accompanied with consolidation of TSB’s positive contributions.”

Sabadell shares rose 4.5% at 0746 GMT against Spain’s blue chip index Ibex 35 which rose 0.6%. Analysts from JPMorgan (NYSE) and JB Capital welcomed the solid quarter-end capital build-up.

Sabadell closed March with a core Tier-1 fully loaded ratio (the strictest measure for solvency) of 12.45% as compared to 12.18% end-December.

In addition to greater trading gains, the bottom line rose 5.6% in this quarter as costs fell by 5.6%. The main reason for the increase in profits was efficiency savings of over 100 million euro annually starting in 2022 due to restructuring plans.

TSB had a positive impact on parent group results for the fifth quarter. It contributed 19million euros, compared 2 million euros at March 2021.

Despite a drop in new mortgage production, TSB’s loan income increased 10.1% compared the previous quarter.

UBS in Switzerland stated that TSB was below expectations mainly due a temporary tax impact.

Sabadell has frozen all plans for TSB’s sale until the company turns around.

In 2018, IT problems caused by IT failures led to the TSB acquisition in 2015.

The first quarter net interest income increased 3% to 858 millions euros compared to forecasts of 853million euros. However, it dropped 0.6% against its previous quarter due pressure from low rates.