“The decline in bank lending rates has come to a halt in the eurozone. Amid steady ECB rates, the profitability of the banking sector is likely to be supported by rising lending volumes, steeper yield curves and a slow upward trend in the average lending rate for mortgage books in countries with a high share of fixed-rate mortgages. Our constructive scenario would be at risk if there were a major shock that clouded the investment outlook and forced the ECB to resume rate cuts. On the back of mounting disinflationary pressure, in mid-2024 the ECB started a rate-cutting cycle that lowered its policy rates from 4% to 2% within a year. This central-bank easing has been transmitted smoothly to the real economy through several channels, including the banking channel. The ensuing downward pressure on bank lending rates for both households and NFCs has played an important role in supporting economic activity in the eurozone at a time of heightened uncertainty and increasing headwinds for trade.”
Morten W. Langer
