Businesses and households could face up to three additional interest rate hikes by the European Central Bank (ECB) over the next 12 months, just as support from the Recovery Fund is winding down and the economy is looking for a new growth driver through faster credit expansion.Banks’ business plans for this year had envisaged net credit expansion of €12.5 billion.Having already exceeded €8 billion in the first half of the year, they raised their targets, with the combined figure now approaching €15 billion. This, however, will have to be achieved in an increasingly unfavorable interest-rate environment.The 12-month Euribor, which reflects market expectations for borrowing costs over a one-year horizon, stood at 2.2% in early February.Following the US and Israeli attack on Iran, markets began pricing in interest rate hikes, and the 12-month Euribor is now approaching 3%.In June, the ECB delivered its first rate hike, raising rates from 2% to 2.25%. If market forecasts are confirmed, the ECB will deliver three more rate hikes.Based on figures presented by banks during conference calls with analysts, a 25-basis-point increase in the interest-rates could boost the four systemic banks’ combined annual net interest income by around €135 million.There is, however, another side, as more expensive loan financing could increase provisioning needs if borrowers’ ability to service existing loans comes under pressure. More importantly, though, it could curb demand for bank lending from businesses and households at a time when the economy is looking for new sources of funding as financing from the Recovery Fund draws to a close.It is worth noting that Recovery Fund loans were offered on highly favorable terms, starting at 0.35% for small businesses and 1% for larger ones, covering up to 50% of an investment, with a further 30% financed by banks and 20% provided through equity.Banks offered interest rates linked to Euribor plus a margin (spread) of 2-3 percentage points. With access to the Recovery Fund now coming to an end, the equivalent investment loan will have to be financed entirely on commercial terms.With Euribor at 3% plus a 2-3 percentage-point spread, the interest rate would reach 5%-6%. The spread could also rise, as without the Recovery Fund’s co-financing, the banking side would assume a greater share of the credit risk.Even with the same spread, annual interest payments on a new €8 million loan would range between €400,000 and €480,000.Amid this prospect, businesses turned to join the Recovery Fund, locking in low-interest financing. This helped drive the increase in demand for loans seen in late spring. It does not, however, provide a solution to the problem facing new financing going forward.A similar issue is emerging in mortgage lending, which this year, for the first time in many years, is showing significant signs of recovery.In the first half of the year, banks extended €1.5 billion in new mortgages. About one in three of these loans was disbursed under the “My Home II” program. Around €950 million was not linked to any government program, up about 18% from 2025.Banks are counting on this trend gaining further momentum. However, if the ECB proceeds with three additional rate hikes, these are expected to put upward pressure on interest rates for new mortgages.With the ECB’s policy rate at 2%, the average variable mortgage rate was 3.5%, translating into annual interest payments of €3,500 on a €100,000 loan.If the increase in the ECB rate from 2% to 3% is fully passed through to variable-rate mortgages, annual interest payments would rise to €4,500, or 28.6% higher.