Banco de Sabadell, S.A. (BNDSF)

How it makes money

A bank like Sabadell earns most of its revenue from the spread between what it pays depositors and what it charges borrowers on mortgages, business loans and credit lines — net interest income. It adds fee income from payments, asset management and insurance products sold to its customers. Because loans and deposits sit on its balance sheet for years, revenue depends heavily on interest rates set by the European Central Bank and on how much of its loan book turns bad.

Retail and business banking in Spain is a competitive, largely commoditized service: current accounts, mortgages and business loans are broadly similar across large banks, and customers can and do switch when a rival offers a better rate. Sabadell's scale and branch network help it compete but do not lock customers in the way a patent or a network effect would.

Bank profitability moves with the interest-rate and credit cycle: higher rates widen the margin between deposits and loans, while a weaker economy raises loan losses and slows new lending. Demand for mortgages and business credit tracks consumer confidence and investment activity, so results can swing meaningfully between a strong and a weak year even without any change in Sabadell's own strategy.