Is the Ibex bank rally slowing down?

The Ibex thermometer remains close to its annual maximum and the banks continue to pull the index, but something starts to change. October has begun to show the first signs of fatigue after a year of almost uninterrupted increases. In just two weeks, the financial sector has erased part of the quarter’s gains while the market began to discount that the European Central Bank (ECB) has reached the end of its restrictive cycle.

Investors know it. If rates have peaked, so have margins. The engine that drove CaixaBank, BBVA and Sabadell could begin to lose power just when the ECB prepares to keep money stable for several months. The market has noticed. The European banking index (Sx7e) go back a 4.6% in the last thirty sessions and analysts are already wondering if the rally still has a way to go or if the time has come to take profits.

Since January, the numbers have been spectacular. The three banks that rise the most are approaching triple-digit returns. Unicaja 94%, Santander 90% and BBVA 84%. But on the trading floor, expectations are worth as much as results, and the feeling is that the best could already be in the price.

The ECB hits the brakes

The turning point could come from Frankfurt. The minutes of the last ECB meeting showed an institution comfortable with current rates and confident that its monetary policy is “sufficiently restrictive.” Eurozone inflation, which picked up in September at 2.2% from the 2% August, does not seem sufficient reason for new increases. Bloomberg analysts Intelligence They foresee the first cut in the second quarter of 2026, a movement that would begin to compress the margins of the entities.

For now, the sector continues to benefit from a high profitability environment. The combined interest margin of the six large Spanish banks exceeded 60,000 million euros in the last twelve months, according to data from the CNMV. But investors are already watching closely for signs of exhaustion.

The first sign of cooling has come from Bankinter. The entity has presented a net profit of 811.5 million euros, 11% more than a year ago, but with an interest margin that is 3.5% lower. The group’s management recognized that the cost of liabilities continues to increase and that competition in deposits and retail credit will be one of the great challenges of 2026.

The focus now shifts to the rest of the sector, which is preparing for a key results week. Santander will open the batch on October 29 and BBVA will do so just one day later, on the 30th. Analysts anticipate solid figures, although with a more cautious tone than in previous quarters. Attention will be on the interest margin, which could show the first signs of moderation after a year of record income.

The strength that hides vulnerabilities

The banking business relies on a paradox. The higher the remuneration of credit remains, the more pressure there is to reward savings. Entities have so far resisted the so-called “liability war” with contained deposit ratesbut the retail market is beginning to change. According to data from the Bank of Spain (BE)the volume of time deposits has increased by 17% so far this year, with offers that already reach 2.5% in medium-sized entities.

Large banks, slower in this reaction, face the risk of a flight of liquidity towards more profitable products. The twelve-month Treasury bill, awarded in October at 2.01%, has become the reference for the conservative saver. This silent competition is beginning to limit the sector’s room for maneuver in the retail sector.

Furthermore, credit to companies shows signs of cooling. CaixaBank, leader in financing for SMEs, recognized in its latest presentation that the demand for working capital has moderated due to the fall in industrial activity. At the same time, BBVA detect greater caution in Mexico and Türkiyetwo markets that until recently were its great source of growth. Santander, with its exposure to Brazil and the United Kingdom, faces more volatile currencies and an increasingly demanding tax environment.

To thisyou riskyes the credit slowdown is added. Companies invest less, families delay decisions and consumption begins to suffer. The B.AND has warned that Credit to households could fall an additional two percent in 2025 if salaries do not keep up with inflation. In this context, provisions will once again gain prominence.

A more selective market

The banking rally has had a second derivative. Investment funds specialized in Spanish equities have increased their exposure to the sector to twenty-eight percent of their total portfolios, compared to twenty percent a year ago. The attractiveness of dividends and buyback programs has been key. BBVA and Santander have returned more than nine billion euros to shareholders in the last financial year, according to Refinitiv.

However, managers are beginning to adopt a more defensive stance. Fidelity and Amundi They have reduced positions in medium-sized banks in the face of the possibility that profits will stabilize. Others, such as JP Morgan Asset Management, maintain exposure in the large, but they rotate towards securities with more regulatory visibility, such as CaixaBank.

Adjusted valuations

The target price thermometer shows that The sector’s potential is beginning to cool, although it still offers margin in some names. According to the data of Marketscreener, Santander maintains an average target price of 8.78 euroswhich leaves a revaluation potential close to 5% regarding its current price. In the case of Bankinterthe forecasts point to 13.22 euroswhich is equivalent to a potential of just over 4%while Sabadell still preserves a certain distance until the 3.32 eurosa estimated increase of 8%.

BBVA and CaixaBank be mthey were already over in consolidation territory. The first presents a target price of 16.90 eurosjust a 0.7% above its current level, while the second round the 8.90 euroswhich means a margin of just 1.6%. Unicajafor its part, is trading slightly above its theoretical reference, with an average target price of 2.23 euroswhich translates into a negative potential close to 3%.

On the whole, The figures show a sector that has exhausted a good part of the easy route. The Ibex banks maintain solid balance sheets and attractive dividend yields, but the market seems to have already priced in much of the optimism. The next stretch will depend more on the resistance of margins and the pulse of credit than on the inertia of rates.