Greek bank customers shortchanged as gap with European loan rates keeps widening

The cost of borrowing for Greek households and businesses remains higher than in other European countries. This comparison makes the consumer and corporate credit categories emerge as those with the greatest gap between Greek and European interest rates. Despite the stiff competition among banks, the gap between Greek and European interest rates remains wide in the domain of mortgage credit, too. The latest rise in European Central Bank interest rates, in early August, was passed on by banks to almost all categories of floating-rate loans linked to the ECB rate, while deposit rate rises have again been selective, without effectively securing the purchasing power of money stagnating in savings accounts. Data compiled by the Bank of Greece and the ECB show that the gap in consumer credit interest rates reaches 2.65 percentage points. Notably, the average consumer credit interest rate in Greece came to 10.38 percent in late July, while the European equivalent stood at just 7.73 percent. Credit card holders are the biggest losers of the interest rate rise as they have absorbed its full impact. Similarly, in corporate credit, rates have risen by 0.70 to 0.90 percent in the last year, absorbing most of the ECB rate rise. These developments can only create worries, combined with the fact that loans of up to 1 million euros are more expensive by 1.20 points in Greece than in Europe, while corporate loans above 1 million euros in Greece are 0.66 points more expensive than in Europe. In mortgage credit, which is the most representative loan category as its rates are pegged on the ECB’s, the floating rate followed the 0.25 percent rise of the ECB. As Bank of Greece data show, the floating rate of mortgage credit in this country, despite the increase of the reference rate by one percentage point, reached 4.28 percent at end-July, rising by just 0.22 points. Banks have chosen to reduce their spreads to maintain demand at high levels, which has allowed the gap with Europe to narrow. Many clients turned to medium-term fixed-rate mortgage loans, convinced by commercial banks. Despite the decline in the fixed-term interest rates, imposed by all banks in recent months to attract customers, their gap with Europe remains wide and confirms that Greek banks have effectively moved their source of profit to the fixed-rate loan domain. Bank data show a swing by clients toward fixed-term loans, as applications for fixed-rate loans are virtually on a par with those with floating rate. The latest Bank of Greece data confirm this swing with an explosive rise in fixed-rate loans lasting more than one year.