OUR Greek banking industry are among those who stand to benefit most from his aggressive austerity policies European Central Banknotes German bank. As he explains, Greek banks remain among the most “sensitive” banks to interest rates in Europe, and thus higher-than-expected interest rates will accelerate the recovery of the sector’s net interest income, with the overall positive impact being stronger than negative. the impact they will have on lower credit growth and possible deterioration in asset quality.

A 75 basis point rate hike in September and signs of further increases are pushing Euribor curves higher, even at shorter maturities, which is the case for most floating-rate loans in Greece. The absorption of rising interest rates in Greek banks is happening faster than in most of southern Europe, with most of the impact expected to be felt within a few quarters, Deutsche Bank said. In addition, management’s updated estimates in the second quarter indicate that sensitivity will remain high, given that approximately 85%-90% of loans are pegged to floating interest rates. So, he notes, whatever the final interest rates are, it’s clear that Greek banks will be among the biggest beneficiaries in Europe, with a nearly 25 percent increase in pre-tax profits from just 100 basis points of higher interest rates. However, Deutsche Bank estimates that in the near term, lending growth, which remains strong, could be driven by a slowdown in GDP growth due to the current crisis in Europe, as well as the impact of higher interest rates on demand for loans.

According to Deutsche Bank, a 100 basis point increase in interest rates results in a nearly 25% increase in pre-tax profits.

In terms of asset quality, it has been robust so far, Deutsche Bank said, but concerns could rise as significant uncertainty remains about how slower economic growth could affect it and whether inflation could lead to more NPS formation.

For Deutsche Bank, the biggest risk to interest income and the biggest challenge for Greek banks is the cost of funding and, in general, meeting minimum equity requirements and eligible liabilities (MREL) targets, which can become problematic, as noted. While all banks have met the target by 2022, it may be difficult to achieve the ultimate goal of phasing in by the end of 2025 without a significant impact on the total cost of issuance (especially given market conditions). Overall, he estimates that there is still a gap of around €12.5 billion that needs to be filled in order to meet the 2025 target. However, it should be borne in mind that organic capital generation will be an important part of the process leading to a more manageable the need to issue about 7 billion euros over the next three and a half years.