The European Central Bank may raise its main interest rate from 2% today to 2.75% by year-end.
The first interest rate hike by the ECB since 2023 is expected to add around €147 million to Greek banks’ annual interest income, but this benefit does not arise only because loans become more expensive.
It is mainly because the increase in interest rates is not passed on to deposits with the same intensity, which continue to be rewarded with returns significantly lower than the eurozone average. Therefore, each new move by the ECB widens the banks’ profit margin, boosting their profitability much more than it strengthens depositors’ savings.
“Deposits will see part of the increase passed on to term deposit interest rates,” a competent executive at a systemic bank notes, “but this will not be equal to the 0.25% announced by the ECB,” he anticipates.
With deposit yields remaining among the lowest in the eurozone, the new rise in interest rates is expected to widen the spread between loans and deposits, which, according to Bank of Greece data has already increased since April to 4.45% from 4.08% in March. Its inclusion in the April data is linked to the evolution of the 3-month Euribor, which is a harbinger of the ECB’s moves, and which had already climbed to 2.2% from 2% in December, dragging the average interest rate on loans charged by Greek banks to 4.76% from 4.39% in February.
