2023-06-08 12:17:28
The difference between interest rates of loans and deposits is decreasing significantly, mainly after the recent increases in interest rates on new term deposits by the Greek banks. This is what she claims in her announcement Hellenic Bank Association (HBA)pointing out that “the divergence between Greece and the Eurozone is limited both to the interest rates on new time deposits and to the spread, even though the cost of borrowing from the capital markets is much higher for Greek banks than the equivalent of other countries”.
The analysis of banks
EET focuses its analysis “on the margin of the total cost of new borrowing for individuals in relation to new term deposits of individuals with an agreed maturity of more than 1 year”, which as it states “was the same as that of March 2023 between Greece and average of the Eurozone (+0.75%)’. Based on this comparison, EET’s analysis recommends the convergence of interest rates on time deposits and the closing of the gap with lending ratescontradicting her methodology Bank of Greece to compare lending and deposit rates based on the weighted average rate for all categories.
The Bank’s analysis also takes into account the interest rate on savings accounts, which is at very low levels compared to the interest rate on term deposits. As EET claims, “for the interest rates of new loans and deposits, as well as for the spread between them, the Central Bank (like the ECB) includes the cost of all first-demand deposits (savings and demand deposits). Demand deposits, due to their characteristics, are priced very low throughout Europe, practically close to 0%.
Furthermore, according to EET’s argumentation, “their partial conversion into term deposits started just a few months ago and is still ongoing, both in Greece and in the Eurozone”. As he notes for the month of April based on the data of the Bank of Greece, “the average weighted interest rate of new deposits appears at 0.25%, i.e. 4 basis points below the average weighted interest rate of all existing deposits (0.29%). However, the average of new term deposits for the month is over 1%.
Therefore, in the current environment of increasing intervention rates from the ECB, the increase in the spread between new loans and deposits, which is fully in line with Eurozone trends, is heavily influenced by the existing demand deposit rate, which will not must be taken into account for this calculation’.
The new interest rates
EET argues that “the data to watch to understand pricing trends and compare with the rest of the Eurozone are the new interest rates offered on loans to individuals and businesses versus the new interest rates offered on term deposits.”
In household time deposits up to 1 year, the interest rate in Greece reached 1.22% (versus 1.16% in March 2023) and 1.87% (versus 1.47% in March 2023). For durations of more than 1 year, in Greece the interest rate rose to 1.71%. The Eurozone average for term deposits to individuals over 1 year stood at 2.29%. Especially for the member states of southern Europe, EET notes that “there are some special characteristics in relation to the other countries. L.g. in Spain the interest rate for term deposits of individuals, with a duration of up to one year, was 1.33%, while in Portugal it was 0.95%. For term deposits of more than a year, interest rates reached 1.64% and 1.24% for Spain and Portugal, respectively.”
In terms of new loans and focusing on 5- to 10-year mortgages, the rate in April rose 16 basis points to 3.66%. In the Eurozone, the average interest rate for the same category of mortgage was 3.51%, compared to 1.77% a year ago (April 2022). The interest rate on total household loans in April increased by 10 basis points in Greece, to 3.88%, while in the Eurozone it increased by 4 basis points to 3.48%, compared to 1.61% a year ago (April 2022 ).
What does EET stand for?
It ranks 14th with an interest rate of 3.53% for fixed rate mortgages from 1 to 5 years.
The main conclusion for the spread between interest rates on new loans and new time deposits based on the EET analysis is that:
• The spread is narrowing significantly, mainly after the recent increases in interest rates on new term deposits by the Greek banking system.
• The divergence between Greece and the Eurozone is limited, both in the interest rates of the new time deposits and in the spread, even though the cost of borrowing from the capital markets is much higher for Greek banks than the equivalent of other countries.
• In April 2023, for the first time since January 2022, the margin of new mortgage loans for the purchase of a house in relation to new term deposits of individuals with an agreed duration of more than 1 year was smaller in Greece (1.7%) in compared to the Eurozone average (2.2%).
• In April 2023 the margin of the total cost of new borrowing for individuals in relation to new term deposits of individuals with an agreed maturity of more than 1 year was the same as that of March 2023 between Greece and the Eurozone average (+0.75%) .
However, regardless of the basis of comparison for the evolution of spreads (that is, if it should be based on the average weighted interest rate of all deposits or only on the interest rate on time deposits), the comparison with the other countries of the Eurozone shows that Greece is ranked among the most expensive countries in terms of lending rates. At the same time, it is also the country with the lowest credit rating, which burdens the cost of borrowing, not only for the State, but also for the private sector. Greece, among others, is:
• 4th cheapest with an interest rate of 1.22% in terms of household time deposits with a fixed duration of up to 1 year.
• 4th most expensive with an interest rate of 12.79% in terms of household consumer loans with a fixed interest rate up to 1 year.
• In 14th place with an interest rate of 3.53% in terms of mortgages with a fixed interest rate from 1 to 5 years.
• In 11th place with an interest rate of 3.7% in terms of mortgages with a fixed interest rate from 5 to 10 years.
• 1st most expensive with an interest rate of 5.69% in terms of business loans.
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