Banks are ready to press the button to de-escalate lending rates, awaiting the first decisions of the European Central Bank (ECB) to relax monetary policy, with the aim of reversing the downward trends in financing.
Its tightening from mid-2022, combined with the slowdown in economic activity, as a result of high inflation and geopolitical tensions, has had a negative impact on credit growth rates.
The rise in balances last year fell 35% year-on-year to around €4.5bn, mainly due to increased early repayments by creditworthy customers, who used their liquidity to reduce their debt servicing costs, and secondarily to a fall in volume of new lending. And this despite the banks’ moves to reduce profit margins, which allowed the final burden on borrowers to be contained.
The beginning of 2024
The climate was similar in the first quarter of 2024, as the demand for new financing from households and businesses remained low. As the official figures of the Bank of Greece show, the balances of loans to the private sector had decreased by 2.9 billion euros until the end of last February, without particularly high levels of early repayments being recorded. “There is liquidity on our side. The aim is to record an increase in applications from interested parties who meet the usual credit criteria” says an industry source.
Bank managements hope that when European interest rates begin to fall and provided that the macroeconomic outlook remains positive, the situation will improve.
In this context, they are planning for the second half of the year aggressive moves that will make loans cheaper for both individuals and businesses, while contacts with customers and targeted campaigns to promote their programs will be intensified.
The goals
These actions are deemed necessary to strengthen financial flows to the real economy, to a degree sufficient for net credit to reach 7-8 billion euros this year.
According to analysts, a key role in this effort will be played by the lending arm of the Recovery and Resilience Fund and the other development programs that facilitate access for businesses to bank financing and ensure better lending conditions.
Deposits
At the same time, cuts in deposit rates are planned. This is because their reduction will allow cheaper loans to be offered. The Bank of Greece, in its latest report, notes that the lower yields offered by domestic credit institutions compared to the rest of Europe to depositors significantly interrupted the upward trend in lending rates in the previous months. In particular, it estimates that Greek businesses would incur higher annual costs of up to 90 basis points if banks did not follow this policy.
Adjustments to the portfolio of fixed-term accounts have already started from the beginning of 2024. Not a few banks have proceeded to abolish products with a duration of more than 12 months and to reduce interest rates on annual programs, while at the same time strengthening them on 6-month solutions.
The aim of these changes is to create the necessary space on the interest expense side so that the reductions in interest rates in the coming period are as large as possible.
