Loan and deposit rates down, above eurozone average
Following a drop by 10 basis points (bps) in April, the interest rate on households’ new time deposits fell further by 18 bps 2.53% in May, according to the Bank of Greece.
The year to date reduction stands at 30 bps, while the current rate is half the record high of 5% posted in June 2012.
Although with some delay and at a slower pace, the drop in time deposit rates has followed that of T-Bill yields in 2014. In particular, the yield for 3-month T-Bills has retreated by 177 bps year to date to 2.13% in June. Similarly, the last 6-month T-Bill yield stood at 2.15%, meaning there was a reduction by 200 bps since the beginning of the year. Although the time deposit rate is gradually falling, it remains more than 100 bps above the respective euro-area average rate of 1.42% in May. In addition, it is still higher than the respective rates in Spain, Portugal and Italy, which range between 1.4 and 1.8%.
On the loan front, after a hike of the average rate on new loans by 36 bps in April, there was a reversal in May with the average loan rate contracting by 36 bps, thus falling back to March levels.
The sharp drop in May is attributed to corporate loans above 1 mln euros, where the rate nosedived by 107 bps after a similar hike in April. As a result, this specific loan rate currently stands at 5.57%, from 6.64% in April.
All other new lending rates showed a small reduction to April levels. The most notable month on month changes were in housing loans (down by 9 bps to 2.94%) and in corporate loans up to 250,000 euros (down by 19 bps to 6.49%).
The consumer loan rate eased by 6 bps to 14.80% and the rate of loans to sole proprietors also dropped by 5 bps to 9.07%
Although corporate lending rates contracted in May, they remain well above the euro area average rates, by 3 percentage points for loans above 250,000 euros and by 2 percentage points for lower amounts. In contrast, the housing loan rate is the only one that is still in line with that of the eurozone.
The respective figures for outstanding (‘old’) loan and deposit rates exhibited a much smoother fluctuation, with the average deposit rate easing by 4 bps to 1.81%, while the average loan rate increased by 3 bps to 5.62%.
As a result, the average spread on outstanding volumes saw a modest rise for the fifth consecutive month of 7 bps to 3.81%.
On the loan rate outlook, the Bank of Greece’s latest Monetary Policy report suggests that Greek banks’ improving liquidity as well as reduced credit risk stemming from the anticipated economic recovery may lead loan rates and spreads lower. This trend may be mitigated by a revival of credit expansion and banks’ provisions against non-performing loans (NPLs).