UK and Italian banks will benefit most from rate hike, study finds

Band Mark Jones

LONDON, June 8 (Reuters)British and Italian banks stand to benefit from rising interest rates in Europe, while French and Dutch lenders will see virtually no benefit and Swiss and Swedish banks may actually suffer, according to a new study.

Rating company S&P Global SPGI.N looked at how 85 of Europe’s biggest banks, which total 31 trillion euros ($33.28 trillion) in assets, will fare as the European Central Bank, Bank of England and Swiss National Bank raise borrowing rates.

It estimated that a 2 percentage point rate hike would raise banks’ annual net interest income (NII), which is strongly linked to profitability, by around 18% on average from last year. .

The UK and Italian banking systems stand to benefit the most, with a weighted average NII impact above 25%.

For the Spanish, German, Danish and Austrian systems the impact is between 10% and 16%, in France and the Netherlands it would be less than 10%, while stricter capital rules in Switzerland and in Sweden could mean that their banks would see 29% and 5% decline, respectively.

“NII’s actual advantage will also depend on two key factors which are uneven across Europe,” the S&P report said. “How much and how fast are policy rates rising, and the strength of net lending in a declining economic environment.”

The current high inflationary environment will also lead to increased operational costs and other credit costs for banks.

Bankers’ salaries are already rising. In the United States, where inflation started to rise before it did in Europe, banks’ “non-interest” spending jumped 7.2% in the first quarter of this year compared to the quarter of the previous year.

Rising interest rates have also put pressure on borrowers whose finances are more fragile, which means more defaults. Specific to the Eurozone, the ECB is phasing out its ultra-cheap financing offers called TLTROs.

The ECB estimates that the resulting impact on bank profits amounts to between 59 and 126 basis points of return on equity, or €10-20 billion in additional interest charges for the largest banks in the world. eurozone.

Still, with inflation expected to decline next year and unemployment expected to rise only moderately, S&P said European banks should generally see an increase in profits this year and into 2023, although many will still hedge at barely their cost of capital.

“We expect higher interest rates to be a net benefit for most European banks in our base case, but the benefit for NII could vary significantly,” S&P said.

($1 = 0.9314 euros)

European banks take advantage of rising interest rates

(Reporting by Marc Jones editing by Bill Berkrot)

(([email protected]; +44 (0)20 7513 4042; Reuters messaging: [email protected] Twitter @marcjonesrtrs))

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