The expectation is rising for the ECB meeting on Thursday and on a probable one interest rate hike in July which now appears to be taken for granted. In this regard, according to the survey by S&P Global Ratingson the regulatory disclosures of 85 major European banksan increase of 200 basis points interest rates would lead, on average, to an increase in the interest margin of around 18% compared to 2021 (excluding Swiss banks).
Interest rate impact, the greatest benefits for Italian and UK banks
However, the extent of this impact varies considerably. British and Italian banks will be the ones that benefit the most by a rate hike, followed by Spanish, German, Danish and Austrian banks, while French and Dutch banks will experience less impact.
The actual increase in interest margins will also depend on two key factors which are not homogeneous in Europe: the extent and speed of the rate hike and the strength of net loans in a weakening economic environment.
The current high inflation environment is likely to lead to higher operating and credit costs for banks. However, with a baseline economic scenario of inflation normalization in 2023 and a limited rise in unemployment, S&P predicts that rising interest rates will generally provide a boost to European banks’ earnings in 2022 and 2023.
Most European banks experienced an increase in net interest income in the first quarter of 2022, spurred by the gradual increase in short- and long-term interest rates, says S&P Global Ratings.
“The magnitude of this impact varies widely, however UK and Italian banks will benefit most from the rate hike, followed by Spanish, German, Danish and Austrian banks, while French and Dutch banks report minor effects”he has declared Nicolas CharnayAnalista S&P Global Ratings ‘
The current high inflationary environment is also likely to lead to higher operating and credit costs for banks. However, with an economic base case predicting inflation normalization in 2023 and a limited rise in unemployment, we predict that rising interest rates, in general, will provide a boost to European banks’ profits in 2022 and 2023. .