Interest rate spread is widening
All categories of new loans, especially business loans, saw an increase in interest rates of up to 0.50% in January, in contrast to deposit rates, where the increases are only up to 0.13%. This trend pushed the spread between new loan and deposit rates to 5.24% and 5.22% for existing balances, from 4.96% and 4.93% respectively in December.
The average increase in new loans is, according to Bank of Greece data, at 30 basis points (at 29 basis points for existing loan balances) and makes the cost of new borrowing as well as the servicing cost for existing loans extremely expensive in the country, burdening family budgets as well as the financing needs of businesses.
The increase is a result of the rise in interest rates by the European Central Bank, which drags the Euribor up as well. It should be noted that the data for January do not fully reflect the upward trend in interest rates, after the last increase decided by the ECB in February, but they do monitor the course of the 3-month Euribor, which, based on the latest data, has risen to 2.8%.
The ECB has already discounted a rise in the key interest rate by 50 basis points and, according to estimates, the 3-month Euribor will stabilize at 4% by the end of the year, while the start of the de-escalation process is not expected before the middle of 2024.
BoG data on interest rate developments for new loans in January 2023 show that business loans have been the hardest hit, rising by up to 50 basis points, with a focus on lending rates for microbusinesses and specifically for loans up to 250,000 euros, which have increased to 6.34%, but also for loans from €250,000 to €1 million, which have increased to 5.63%.
The average cost of financing large companies – i.e. for loans over €1 million – is also high, having increased to 4.85% from 4.49% in December, while the average cost of business loans has climbed to 7.20% from 7.06% in December.
