Higher interest rates, cheap money: like the banks from the ECB

The policy of the European Central Bank (ECB) and other central banks is increasingly becoming a profitable business for European banks.

Rising interest rates around the world are already showing in their books.

You can also bring in high risk-free returns via a favorable credit program from the ECB.

Tim Kanning

Editor in Business.

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The 34 largest banks in Western Europe were able to increase their net interest income by an average of 10 percent in the first half of the year, according to a study by the rating agency Moody's.

The most important German institutions such as Deutsche Bank, Commerzbank and DZ Bank increased their net interest income in the first half of the year by an average of around 15 percent compared to the previous year.

The gains for Austrian banks are even greater.

According to Moody's figures, Erste Group and Raiffeisen Bank International even earned 23 percent more from their interest business than in the previous year.

In the first half of the year, the banks were able to benefit above all from the fact that the central banks in Eastern Europe, Great Britain and the United States increased their interest rates.

This played into the hands of Commerzbank, for example, with its Polish subsidiary MBank, or the Austrian banks, which are traditionally well represented in Eastern Europe.

Interest income should continue to grow

The European Central Bank started raising interest rates later.

The analysts at Moody's therefore expect that interest income will continue to grow significantly.

ECB President Christine Lagarde said on Monday in front of the European Parliament: "We assume that we will raise interest rates further in the next few meetings in order to dampen demand and to protect ourselves from the risk of a sustained upward movement in inflation expectations to protect."

This also makes the analysts positive, who are currently extremely optimistic about bank stocks.

For example, Chris Hallam from the American investment bank Goldman Sachs believes Deutsche Bank is capable of doubling its price to EUR 17.30, mainly because the institute is likely to benefit from rising interest rates.

Jason Napier from the major Swiss bank UBS was also recently optimistic about the banking sector in Europe.

Net interest income is above expectations and capitalization is generally more than adequate to handle expected increases in borrowing costs, he wrote in his latest analysis.

Investors remain skeptical

So far, however, investors have been more skeptical.

The share prices of the big banks are currently not finding a uniform direction.

Deutsche Bank's exchange rate has fluctuated between EUR 8 and EUR 9.50 for weeks.

At the current level of EUR 8.54, it is almost 30 percent lower than six months ago.

Although Commerzbank shares have risen by a quarter within a month, this upswing was also preceded by considerable price fluctuations.

Finally, high inflation, soaring energy costs and ongoing supply chain problems in global trade can pose problems for a large number of bank customers and drive up credit risks.

The Moody's analysts also warn of these risks in their study.

Income from switching

But the policy of the central bank is also currently generating special income for the banks in another way.

During the corona crisis, the central bank set up a program called TLTRO, which the institutes could use to refinance themselves cheaply.

Since the banks are now earning positive interest rates again when they park deposits with the ECB, they can make money simply by shifting funds.

All in all, according to a study by the investment bank Jefferies, banks in the euro zone could increase their interest income by around 7.9 billion euros in the final quarter alone.

The analysts see the major Italian bank Unicredit and the French BNP Paribas as the biggest beneficiaries.

Lagarde left open in the European Parliament how long the banks can continue to benefit from this special situation.

The central bank must ensure that monetary policy measures are always proportionate, she said.

The balance between costs and benefits of the TLTRO program must remain positive.

"We will look at these questions." The commercial banks had secured a total of around 2.1 trillion euros through the program.