By Vassos Angeletou
The profits of Greek banks continue to rise at an unbelievable rate – even for the banks themselves – in the wake of the ECB’s interest rate jump of 4.5 percentage points over the last year and a half.
Indeed, the third quarter financial results announced on Friday by Alpha Bank and Piraeus exceeded analysts’ expectations, confirming the strong dynamics of interest income in shaping the bottom line for domestic banks.
Alpha Bank reported quarterly profit of €208m with adjusted ROTE at 13.9% – the bank’s highest ever record. Piraeus announced adjusted Q3 profits of 279 million euros with a ROTE of 15%.
In both cases, the banks exceeded the expectations of investment houses, confirming the “recovery story” of the domestic banking sector. Of these profits, more than 50% came from interest income, which reached 1.4 billion euros in the first nine months in both cases.
The question that is now being asked anxiously – as was clear from the questions of the analysts to the two administrations on Friday – is when the “gold rush” of interest rate profits will end.
At the October meeting from Athens, the ECB decided to put the “brake” on the upward streak of interest rates, declaring, however, that interest rates will remain at their current high levels for a prolonged period in order to ensure the return of inflation to 2% levels.
Although Christine Lagarde left open the “window” of a new rise if the conditions dictate it, the governor of the Bank of Greece, Yannis Stournaras, estimated in an interview that he does not consider such an eventuality possible.
In any case, however, it is clear that we are now entering the era of interest rate stabilization, as Alpha Bank’s Chief Financial Officer Lazaros Papagarifallou also admitted. In response to analysts’ questions, he admitted that “moderated pressures on net interest income (NII) in 2024 compared to 2023” are expected.
One reason is that the ECB’s rate hike will be passed on to a much greater extent to the interest rates banks will pay on term deposits. The cost of deposits will increase in the coming quarters as more and more depositors turn to term products. Nevertheless, the ratio of fixed deposits/savings deposits does not exceed 25% based on September data.
Another reason is that interest margins on loans to large companies will come under even greater pressure. It is noted that banks continue to face the phenomenon of early loan repayments by businesses that have liquidity, while the high cost of money over a long period of time is expected to intensify the renegotiation of lending rates by businesses – something that is already visible in the formation of September interest rates in new loans over 1 million euros.
For the time being, however, the dynamic course of interest profits is expected to continue in the fourth quarter of 2023, as assured by Mr. Papagarifallou. This is why Piraeus Bank revised its annual target to 1.8 billion euros from the 1.7 billion euros it estimated for the year last June.
