Record interest rate spread
One of the pillars of Greek banks’ profitability has been the limited increase in interest rates on deposits, leading to the highest interest spread in the eurozone – i.e. the difference between loan interest rates and deposit interest rates.
This spread rose to 3.25 percentage points in the first half of 2023 from 2.3% in the first half of 2022, the highest difference among European banks and double the European average, which was just above 1.5%.
This emerged from an analysis by DBRS Morningstar on the profitability prospects of European banks in 2023 and 2024, based on which a similar trend is recorded by Portuguese banks, which show a marginally smaller – close to 3.1% – net interest margin (NIM) compared to the Greek ones, followed by the Irish and Spanish ones, with a corresponding index close to 2.5%.
DBRS estimates that the positive impact of high interest rates will remain strong next year, albeit at lower levels than in 2023. “We expect the high interest rate environment to continue to support bank earnings in 2024,” but the trend “will be affected by pressures on interest margins expected to exist in 2024 due to subdued loan growth, as well as higher deposit repricing costs.”
For now, however, as can be seen from the DBRS data, the disproportionate increase in interest rates on the loan portfolio, as opposed to deposit rates, has also maintained the return on equity (ROE) of the banking system at a high level, with the Greek banks having one of the highest ratios, which, based on the data of the first half of the year, stood at 12.8% and is the sixth best performance among 13 countries in the eurozone.
Achieving a high return on equity allows banks to distribute a dividend from 2023 profits and despite the fact that the return on equity ratio deteriorated from the high level of 20% recorded in the first half of 2022, it is now on a sounder footing thanks to core sources of profitability such as interest income rather than one-off financial revenue.
