Lisbon, Dec. 5, 2024 (Lusa) - The interest rates on new term deposits made by individuals in Portugal have since the beginning of this year fallen faster than those charged on loans, according to data from the Bank of Portugal.
According to data released this week by the banking supervisor, new deposits in October had a 22.4% lower rate of return than at the end of December 2023. As for corporate deposits, the difference was 20.5%.
As a result, the average rate of return on term deposits for individuals in October was 2.39%, compared to 3.08% in December, while that for corporate deposits was 2.75%, down from 3.46%.
Meanwhile, the average rate on both mortgages for residential housing and loans to companies fell by 19.1% compared to the end of December.
At the end of October, the average interest rate charged by Portugal's banks on home loans was 3.39%, compared to 4.19% at the end of 2023, while for business loans it fell from 5.66% to 4.58%.
Conversely, the average interest rate on consumer loans rose from 8.52% in December 2023 to 8.91% in October this year.
After years of negative key rates, the European Central Bank (ECB) began a cycle of 10 consecutive hikes to contain inflation in the eurozone, with the reference interest rate rising to 4.0%.
In mid-October, the ECB lowered its benchmark interest rate by 25 basis points to 3.25%, the third cut of the year, against a backdrop of moderating inflation and a short-term slowdown in economic activity.
Despite the slowdown and the 75 basis point cumulative cut in the benchmark this year, the general picture for the sector shows a lag in the transmission of monetary policy to interest rates for customers.
In a report released in October, Bank of Portugal researchers Diana Bonfim and Leonor Queiró noted that there was an "incomplete transmission of monetary policy to deposit interest rates."
The researchers' study looked at the period between the last quarters of 1997 and 2023 and concluded that for every 100 basis point increase in money market interest rates, there was a 65 basis point increase in new deposit rates over the course of a year.
According to the analysis, when the ECB raised key interest rates, the difference was more noticeable in corporate deposits (which rose by 95 basis points) than in individual deposits (59 basis points).
The conclusions also point out that the transmission of these measures had taken place at a weaker pace than in the euro area as a whole, for which the increase was 87 basis points.
As for credit operations, when there is an increase of 100 basis points in money market interest rates, the Portuguese market transmits an increase of 58 basis points.
But while in the case of companies the transmission is, according to the study, "very similar" - 93 basis points in the case of loans and 95 basis points in the case of deposits for every 100 points in monetary policy - the case is different for households.
"In contrast, banks are quicker to adjust interest rates on bank loans to households than on their deposits," write the authors.
According to the researchers, when there is a rise of 100 basis points in the ECB, households face increases of 71 basis points in loans and 59 basis points in deposits.
The researchers point out that in the period between 2015 and 2021, when deposit interest rates were close to zero, banks "recorded losses on deposits throughout this period, since they offered depositors rates higher than their cost of funding in monetary policy operations."
In November, the Morningstar DBRS financial rating agency projected that Portugal's banks should achieve record profits this year and anticipated a "strong performance" in 2025.
Even so, the financial rating agency's analysts warned that growth rates should stabilise "at structurally high levels in the coming quarters, as interest rates gradually fall."
They emphasised that healthy profits in recent years and the generation of internal capital have "kept capital ratios strong" in Portuguese banking.
Despite anticipating a gradual decrease in both deposit and lending interest rates - in tandem with the ECB's monetary policies - Morningstar DBRS suggested that the easing of these policies could stimulate a "further recovery in the volume of loans at structurally higher rates and support bank profits’.
OJ/ARO // ARO.
Lusa
