ECB’s De Guindos warns higher deposit costs will hit banks’ lending income

MADRID (Reuters) – Euro zone banks’ lending income is expected to be negatively impacted by a gradual increase in the remuneration of deposits, European Central Bank Vice-President Luis de Guindos said on Tuesday.

De Guindos, who was speaking at an event in Spain, said that though the pace of remuneration of liabilities or savings was always slower than that of assets, sooner or later it would catch up and to some extent it was already taking place.

“That is one of the reasons why the market is discounting that the improvement of (financial) margins that has taken place may be affected going forward, this improvement may not be as stable (as before),” he said.

Though in general, banks in the euro zone benefit from higher interest rates, this is more pronounced for Spanish banks, which are mainly retail lenders.

Banks in Spain have benefited from higher returns on mortgage loans, overwhelmingly tied to floating rates, while keeping a lid on rates for savers.

As of September, Spanish banks offered on average a return on one-year household deposits of 2.33%, compared to 3.09% in the euro zone as a whole.

In that context, Spanish lenders’ net interest income (NII), the difference between earnings on loans minus deposit costs, grew 27% year-on-year on aggregate in the first half, allowing lenders to revise upwards their NII outlook in 2023.

On Tuesday, Bankinter’s Chief Executive Officer Maria Dolores Dancausa said that she was aware that earnings would not benefit much more from higher rates once the full repricing of existing loans had taken place. She did not elaborate when this positive effect would end.

The Deputy Governor of the Bank of Spain Margarita Delgado told the same event she also expected a gradual increase in the rates of deposits due to an intensification of competition for deposits in 2024.

(Reporting by Jesús Aguado; Edting by Emelia Sithole-Matarise)