Chart of the week
Since the beginning of 2022, the 12-month Euribor has risen by 72 basis points, from -0.50% to +0.22%. The rate has thus returned to its highest level since March 2015, the period corresponding to the launch of the ECB’s first quantitative easing.
As a reminder, the Euribor is one of the main references of the European money market. It is the interest rate at which banks can lend to each other within the Eurozone.
OUR ANALYSIS
The 12-month Euribor reflects banks’ expectations regarding the ECB’s deposit rate, currently set at -0.50%. Until the end of 2021, the market expected the ECB not to raise rates for the next 12 months. For the banking sector, this change in expectations is good news.
Indeed, according to Morgan Stanley’s research, an increase of only 50 basis points in short-term rates would boost Eurozone banks’ 2023 revenues by an average of 2.5% and their profits by 8.7%.
This positive contribution to earnings would be particularly significant for domestic Spanish banks, whose revenues would increase by +7% to +11% in 2023 and profits by +18% to +33%. A positive impact for the banking sector is therefore to be expected as early as 2022 given the current levels of the 12-month Euribor.
The opinion expressed above is dated Mai 6, 2022 and is subject to change
See also: https://latribune.lazardfreresgestion.fr/en/eurozone-a-good-composite-pmi-masking-contrasting-trends/
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