Banks see positively the possibility of a reduction in interest rates, even a small one, in 2024, since they consider it would stimulate credit expansion and therefore enhance the sustainability of their profitability.
Interest income in 2023 – a year good for credit institutions that exceeded all expectations – is expected to surpass 7 billion euros. Banks see another good year in 2024, even with a drop in interest rates which will certainly not be large and it will also be offset by higher credit expansion.
More specifically, credit institutions estimate that credit expansion will be up to 8 billion euros.
How much can interest rates fall – Impact on lending
Although the interest rate cut will start gradually with 25 basis points, banking circles do not rule out a 100 basis points (-1%) rate cut in 2024 if inflation helps.
Meanwhile, loans will be clearly higher in 2024 compared to2023.
This view is mainly based on the strengthening of EU funds and projects funded by the RRF, the increase in property prices together with the changes in the transfer regime (no more cash) and the need for a number of “green renovations”.
The slowdown in credit growth seen in 2023 is mainly related to the rise in interest rates, which resulted in higher repayments especially during the first half.
Banks tried to reverse the image in the fourth quarter of 2023, however they failed to achieve much, since the time they had at their disposal was relatively limited.
For 2024, the Greek economy and businesses will continue to benefit from the significant flow of EU funds in the form of grants and competitive interest rates mainly through RRF loans.
According to the banks’ estimates, investment financing from the Recovery and Resilience Facility should be around 5.0 billion euros in 2024.
As banking agents reported, an aggressive reduction in interest rates is not expected, but a prudent reduction which will not significantly change the Greek banks’ figures.
