6

Lower interest rates are driving firms’ loan demands across the eurozone. According to the European Central Bank’s (ECB’s) October 2024 euro area bank lending survey (BLS), euro area banks reported a moderate net increase in demand from firms for loans and credit-line drawdowns since the third quarter of 2022 while remaining weak overall.

Net demand for housing loans rebounded strongly, while demand for consumer credit and other lending to households grew modestly, according to the BLS.

Euro area banks also reported the first negative impact of the European Central Bank’s (ECB’s) interest-rate cuts on their net interest margins (NIMs) over the past six months since the end of 2022. “Although banks expect rate policy to contribute to an increase in intermediation volumes associated with rate decisions, supporting profitability in the coming six months, the negative net impact on margins associated with the ECB rate policy is expected to deepen and result in a decline in overall profitability from the high levels reached during the 2022-2023 tightening cycle,” the BLS also observed. “Banks expect the impact of provisions and impairments on profitability to remain slightly negative.”

Euro area banks also indicated they expected the net impact of past and expected ECB interest-rate decisions on margins and bank profitability to become more negative over the next six months, while the impact on loan volumes was expected to turn positive (8 percent).

The government of Italian Prime Minister Giorgia Meloni wants to raise €3.5 billion from banks and insurance companies in a bid to plug a €9-billion gap in its budget finances. “As we promised, there will be no new taxes for citizens. In addition, we will make the tax cut on workers structural, and 3.5 billion from banks and insurance companies will be allocated to Healthcare and the most vulnerable to ensure better services that are closer to everyone’s needs,” Meloni posted on X on October 16, after her cabinet approved its budget for the next three years.

The Department of the Treasury confirmed €30 billion of fiscal measures for the 2025 budget, including permanent income tax cuts and social contributions for middle- and low-income earners. The government also said it will widen next year’s deficit to 3.3 percent of gross domestic product (GDP) from an estimated 2.9 percent this year, with an additional €9 billion being borrowed to fund the measures.

Speculations about a bank levy being implemented have grown over the weeks, weighing on lenders’ share prices. But the size of the actual levy that was approved will “not frighten the markets”, Minister of Foreign Affairs Antonio Tajani confirmed on X. Minister of Economy and Finance Giancarlo Giorgetti also said prior to the budget’s approval that contributions from banks “shouldn’t be considered blasphemous”.

On October 18, the Bank of England (BoE) published a working paper that analysed the importance of climate-related investments by firms, using a large economy-wide survey of UK firms. The paper found that over half of the firms expect climate change to have positive impacts on their investments in the medium term, with around a quarter expecting a large impact of more than 10 percent. Around two-thirds of these investments are expected to be in addition to normal capital expenditures, with some firms investing less elsewhere.

Realised and expected climate investments also increase with firm size. “Large firms (250+ employees) expect climate change to account for 7.1 percent of total capital expenditure over the next three years, whereas smaller firms (10-49 employees) only expect climate investments of around 2.1 percent, on average,” the paper also noted. “Similarly, over the past three years, climate-related investments have accounted for 3.3 percent of total investment for the largest firms, whereas this number is only 1 percent for the smallest firms. Medium-sized (50-249 employees) firms report climate investments in between those of the largest and smallest firms.”

Realised and expected climate investments by firm size (in response to the questions: How have factors related to climate change affected the capital expenditure of your business over the past three years? How do you expect them to affect your capital expenditure over the next three years?)

Climate investments are expected to be made mainly through firms switching to green-energy sources and improving their energy efficiency, while the respondents also intended to finance these investments by using internal cash reserves as opposed to bank borrowing or bond and equity issuances. “There are several reasons why bank borrowing may be a less frequent source of finance for climate investments,” the paper contended. “First, firms which intend to make climate investment may find it more difficult to obtain financing for climate-elated capital expenditure relative to other investments. Furthermore, if firms are expecting to make relatively small climate-related investments, they may be able to finance those with internal cash, rather than needing to apply for external financing.”

Sweden’s central bank, Sveriges Riksbank (Riksbank), recently warned commercial banks that regulation could be imposed upon them if they fail to provide businesses with sufficient access to cash. With Sweden’s Ministry of Finance enquiring about cash accessibility, the central bank responded by stating, “Regulation is needed to ensure that operators, who are legally obliged to accept cash, have access to functioning services for daily takings and petty cash.”

With the country moving quickly towards a cashless paradigm, banks have drastically reduced their cash-issuing services for businesses, with the cash-in-transit company Loomis AB almost exclusively providing this service on a commercial basis instead. As such, Riksbank has intervened to press banks to take on more responsibility for this service in case digital payment systems fail.

While it is already required that certain banks must ensure that companies and public authorities can deposit daily takings, Riksbank has suggested that this legal requirement should be tightened and clarified, as the services currently offered by the banks are “inadequate”.

“The measures we propose in our written communication are necessary to enable people who need to use cash to do so, but also to strengthen our civil preparedness regarding payments,” said Christina Wejshammar, head of the payments department at Riksbank. “Many businesses continue to accept cash, but without these services they would not be able to do so in practice.” Additionally, Wejshammar noted that if there were new obligations to accept cash for operators selling essential goods, services for daily takings and petty cash would have to be maintained throughout the country. “In this way, the banks contribute to a cash chain that functions under normal conditions, and thus also in crisis situations.”

With at least 217 people having died as a result of the worst floods in the country in decades, Spain’s banks have offered a three-month loan moratorium to mortgage holders, the self-employed and small businesses affected by the floods in the southeast. During this period, these borrowers will not have to pay their instalments, according to Spanish banking associations. Banks are also in contact with the state credit agency ICO (Official Credit Institute) to outline additional measures they can take to help families and businesses economically affected by the floods, the associations also confirmed.

In 2020 and 2021, the government extended freezes on repayments and maturities of state-backed loans to help Spanish companies cope with the COVID pandemic. It also provided mortgage relief to families in 2022 to help them cope with surging borrowing costs.

Poland’s banking sector is in fine health compared to its peers, according to an assessment by BMI, a Fitch Solutions company, published on November 1. BMI primarily highlighted the sector’s low and falling nonperforming loans (NPL) ratio, indicating significant improvements in loan quality. The ratio has fallen steadily from 6.0 percent in the first quarter (Q1) of 2018 to 2.8 percent in Q1 2024, which BMI observed was particularly impressive given Poland’s challenging economic environment in recent years, with elevated inflation, high interest rates and weak growth. But credit holidays and other regulatory measures have largely protected borrowers from defaulting, BMI added.

BMI also noted Polish banks’ consistently strong capital adequacy ratios (CARs) over recent years, with the CAR standing at 21.1 percent as of Q2 2024, up from a low of 18.3 percent in Q3 2022 and significantly above the regulatory minimum requirement. “We expect Poland’s banking sector to maintain its strong capital position due to continued regulatory oversight and prudent banking practices,” according to BMI’s findings. “However, further losses from the Swiss franc mortgages fallout, especially if banks start reducing provisions too early, and the risk of implementation of further regulatory measures to support consumers, run the risk of weighing on banks’ capital. The banking sector’s ability to adapt to these challenges will be crucial in maintaining stability and growth in the coming years.”

In late October, the Czech National Bank (CNB) raised the minimum reserve requirement for the country’s commercial banks—that is, the proportion of liabilities banks must, on average, hold with the central bank—by twofold, from 2 percent to 4 percent. The central bank said the decision was taken to lower the costs of implementing monetary policy. Bank reserves have been held at the CNB on an interest-free basis after policymakers cancelled paying interest on minimum reserves last year, echoing a similar move adopted by the European Central Bank.

According to Czech lender MONETA Money Bank, however, the increase will cut its annual net interest income (NII) by 200-300 million korunas (US$8.6-$12.9 million) next year and beyond, although it maintained its net-profit estimate for next year at 5.3 billion korunas. “It will create additional pressure on deposit pricing. I reckon it will take 10-15 basis points off the pricing of deposits,” MONETA’s chief executive, Tomáš Spurný, told Reuters following the decision. Spurný added that costs would have to “trickle down to the interest offered” on deposits but that there was unlikely to be much of an impact on the lending market.

Total bank loans in Romania rose by 8.4 percent on an annual basis to RON 413 billion ($90.5 billion) at the end of September, according to data published by the National Bank of Romania (NBR). This means that loan-growth rates are increasing, with September’s year-on-year expansion outpacing the 7.7 percent recorded in August and the 6.8 percent registered at the end of July. Central bank data also showed that deposit accumulations by Romanian banks were even greater in September, with total deposits rising by 8.6 percent to RON 595 billion.

Loans to non-residents, such as parent financial groups, ballooned by 24 percent from September 2023 to RON 156 billion, while consumer lending and mortgage lending surged by 15.9 percent and 2.9 percent, respectively. As for corporate lending, short-term loans of up to a year rose by a whopping 43 percent, whereas loans with maturities over five years declined by 2.8 percent.

 >>>WESTERN EUROPE AWARD WINNERS  

BANKING CEO OF THE YEAR
Western Europe
Mr. Johan Thijs

KBC Group (Belgium)

**********

BEST CUSTOMER SERVICE
PROVIDER OF THE YEAR

Western Europe
ING (Netherlands)

**********

Best Banking Group Belgium
KBC Group

Best Banking Group Spain
Banco Santander

Best Investment Bank Of The Year France
BNP Paribas CIB

Best Investment Bank Of The Year Germany
Deutsche Bank

Best Investment Bank Of The Year Portugal
Banco Invest

Best Investment Bank Of The Year UK
Barclays Investment Bank

Best Commercial Bank Of The Year Austria
Raiffeisen Bank

Best Commercial Bank Of The Year Germany
Commerzbank

Best Commercial Bank Of The Year Denmark
Sydbank

Best Commercial Bank Of The Year Sweden
Handelsbanken

Best Commercial Bank Of The Year UK
NatWest

Best Private Bank Of The Year France
BNP Paribas Banque Privée

Best Private Bank Of The Year Germany
Deutsche Bank

Best Private Bank Of The Year Spain
Santander Private Banking

Best Private Bank Of The Year Switzerland
Piguet Galland & Cie SA

Best Innovation In Retail Banking Austria
Erste Bank

Best Innovation In Retail Banking Denmark
Danske Bank

Best Innovation In Retail Banking France
Crédit Agricole

Best Innovation In Retail Banking Italy
Intesa Sanpaolo

Best Innovation In Retail Banking Turkey
Akbank

Best Innovation In Retail Banking UK
Monzo

Best Mortgage Lender Germany
Commerzbank

Best Mortgage Lender Netherlands
ABN AMRO

 >>>EASTERN EUROPE AWARD WINNERS  

BANKING CEO OF THE YEAR
Eastern Europe
Dr. Sándor Csányi

OTP Bank (Hungary)

**********

BEST CUSTOMER SERVICE
PROVIDER OF THE YEAR

Eastern Europe
LHV Pank (Estonia)

**********

Best Banking Group Hungary
OTP Group

Best Investment Bank Of The Year Estonia
LHV Pank

Best Commercial Bank Of The Year Albania
BKT bank

Best Commercial Bank Of The Year Croatia
Zagrebačka banka

Best Commercial Bank Of The Year Hungary
MBH Bank

Best Commercial Bank Of The Year North Macedonia
Sparkasse Bank AD Skopje

Best Commercial Bank Of The Year Poland
PKO Bank Polski

Best Commercial Bank Of The Year Slovakia
VÚB banka

Best Commercial Bank Of The Year Slovenia
NLB

Best Private Bank Of The Year Croatia
Zagrebačka banka

Best Private Bank Of The Year Poland
Pekao SA Private Banking

Best Innovation In Retail Banking Albania
American Bank of Investments (ABI)

Best Innovation In Retail Banking Croatia
RBA

Best Innovation In Retail Banking Czech Republic
Česká spořitelna

Best Innovation In Retail Banking Estonia
Luminor Bank

Best Innovation In Retail Banking Lithuania
Šiaulių bankas

Best Innovation In Retail Banking Poland
Alior Bank

Best Innovation In Retail Banking Serbia
NLB Komercijalna banka

Best Innovation In Retail Banking Slovakia
Tatra banka

Best Innovation In Retail Banking Slovenia
NLB

Best Innovation In Retail Banking Uzbekistan
Trustbank

Best Mortgage Lender Czech Republic
Česká spořitelna

Best Mortgage Lender Hungary
OTP Bank

Best Mortgage Lender Lithuania
Šiaulių bankas