“Our financial margin calculations decreased slightly in December, as interest income on loans rose at a lower rate than the cost of deposits and began to show 'peaking' dynamics in southern Europe. On a quarterly basis, we saw a positive development in net interest income at banks in France.” Italy and Spain in the fourth quarter.
Investment bank Jefferies published a note on updated euro zone bank rates in December.
In the euro zone, deposit beta rose to 23% in December, according to Jefferies Estimates, based on European Central Bank data published this morning, from 21% in November.
“Our financial margin calculations decreased slightly in December, as interest income on loans rose at a lower rate than the cost of deposits and began to show 'peaking' dynamics in southern Europe. On a quarterly basis, we saw a positive development in net interest income at banks in France.” Italy and Spain in the fourth quarter.
The sensitivity of interest rates on bank deposits to changes in interest rates is called the “deposit beta.”
Deposit beta measures the sensitivity of the cost of a bank's deposits to interest rate changes. For example, a deposit beta of 0.4 means that a bank increases its average deposit rate by 40 basis points for a 100 basis point increase in the interest rate.
Jefferies says deposit betas are increasing in the eurozone. “In December, deposit beta was 23% euro area-wide, calculated from the beginning of the rate appreciation cycle, while the carry rate, calculated from the initial portfolio, is 30%,” analysts say. This percentage remains relatively low in southern Europe, reaching 15% in Italy and 12% in Spain, while it is highest in Germany and France (24% and 31%, respectively).
“Our customer-related margin measure remained broadly stable at 2.27% in December relative to the euro area,” analysts say.
On a monthly basis, the financial margin (obtained by deducting the cost of deposits from loan income and not taking into account other elements such as coverage, country portfolios, etc.) decreased by 2% in France, and 1% in Italy, Germany and Italy. 0.5% in Spain, where growth in interest income on credit was offset by an increase in the cost of deposits.
The value is starting to look like a significant rise in southern Europe, although it was still 30% higher in December than last year's values, which supports the annual comparison for 2024.
Regarding the trajectory of Euribor interest rates, the investment bank says that the Euribor interest rate at 3 million stood at 3.9% at the beginning of February, that is, it is practically stable compared to the previous month. Market expectations of future interest rates have stabilized slightly compared to January, with the 3M Euribor at around 310 basis points on average in 2024 (+10 basis points per month) and 210 basis points in 2025 (-5 basis points per month ).
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