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Tuesday, June 25, 2024

Banks will show profits greater than 2023

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Most of the ECB hikes were in 2023 when it kicked in half the interest rates of today

ΚΕρδη μεγαλύτερα του 2023 θαδεξοιτεζς /></p>
<p> This “crazy” earnings run will start to ease slightly after the ECB's first decision to cut interest rates from June 2024. </p>
<p><img decoding= By Panagiotis Rougalas

Cypriot banks are keeping a low profile, but 2024 will likely generate more profits than 2023's which were considered record profits. 2023 proved to be a record year in terms of profits, but as the European Central Bank has left interest rates unchanged so far, the money deposited by the Cypriot banks in the central banks is being “raised” in the best possible way . At the same time, the loans they have granted which are affected by Euribor and interest rates linked to the ECB are also producing the maximum possible profits at this stage. The expected profits for Cypriot banks in 2024 cannot be ruled out to significantly exceed the 1.2 billion euros which – although not all banks have presented their results for 2023 – is the size they fluctuated in the past year. The 2023 total income for banks was mainly based on a high percentage of net interest income, which combined with interest rates on loans that were rising immediately, as opposed to those on deposits, brought the big gains. In 2024 there are some returns on deposits from banks, however the margin remains large and they will not be able to do “damage” to the net profits of the banks which will exceed those of 2023.

The reason is simple. If we look at the European Central Bank rate hikes since the summer of 2022, we will see that most of the hikes took place in 2023. Six (6) in number, compared to four (4) in 2022. The deposit facility rate, the transaction rate main refinancing rate and the marginal financing facility rate now stand at 4%, 4.5% and 4.75% respectively. In 2023 it entered with the corresponding rates at 2%, 2.5% and 2.75%. Amounts that are half of what they are today. On February 8, the 2023 increase cycle began, where on September 20 it closed with the last increase and remained at the above-mentioned levels that are still in effect today. So it becomes clear that, until the ECB decides to reduce interest rates, the banks generate very large profits from interest.

In 2024, there are some returns on bank deposits, but the margin remains large.

Decrease is inevitable

This “crazy” run of profits will begin to taper off slightly after the ECB's first decision to cut interest rates from June 2024. And if they do, according to what the ECB plans, they will taper off slightly, to 0, 25% or a maximum of 0.5%. So, at worst they will go back to the interest rates that were in place until August 2, 2023, or June 21, 2023, at 3.75%, 4.25% and 4.5%, or 3.5%, 4% and 4.25% respectively. As ECB chiefs said in April 2024, the Governing Council would be in a position to begin easing monetary policy at its June meeting if data received by then confirm the medium-term outlook for inflation included in the forecasts of March.

She achieved her goal

Banking executives from the Cypriot banking landscape confirm that lending has “cut off” in 2024, saying that the time has come to focus on non-lending revenue inflow methods. In practice, as they explain, the ECB achieved its goal, that is to reduce the flow in the “cannula” of lending and promote saving by raising interest rates.

According to the Central Bank, in March 2024 total new loans showed a decrease and reached 496.4 million euros, compared to 575.5 million in February 2024. New consumer loans decreased to 22.2 million. (of which 20.5 million net new loans), compared to 23.2 million the previous month (of which 21.3 million net new loans). New home purchase loans decreased to 119.6 million (of which 86.9 million were net new loans), compared to 144.1 million in February 2024 (of which 79.2 million were net new loans). New loans to non-financial companies for amounts up to 1 million increased to 69.3 million (of which 52.2 million were net new loans), compared to 57.3 million in February 2024 (of which of which 37.6 million net new loans). New loans to non-financial corporations for amounts above 1 million recorded a decrease to 270.8 million (of which 123.8 million were net new loans), compared to 340.7 million in the previous month (of which of which 124.4 million net new loans).

Interest rates and the scissor

Always according to the CBC, the interest rate on consumer loans increased to 6.19%, compared to 6.17% in February 2024, while the interest rate on home loans decreased to 4.75%, compared to 5.15% in the previous month. The interest rate on loans to non-financial companies for amounts up to 1 million showed a decrease to 5.52%, compared to 5.91% in February 2024 and the interest rate on loans to non-financial companies for amounts above 1 million .euro recorded a decrease to 5.88%, compared to 6.07% in February.

The gap between deposits and loans appears to be wide also from the March 2024 data. one-year interest rate from households increased – according to the CBC – to 2.24%, compared to 1.98% in February 2024 and the corresponding interest rate for deposits from non-financial companies decreased to 2.24%, compared to 2.53% in February.

Source: www.kathimerini.com.cy

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