The governor of the Bank of Greece, Giannis Stournaras, addressed a warning to the bank managementspointing out that the favorable conditions which contributed to the increase in its profitability are not going to continue in the future.

As he mentioned speaking to EUROFI 2023 High Level Seminar, “commercial banks must prepare for a more unfavorable banking and macroeconomic environment due to the tightening of monetary policy”. As he explained, interest rate increases by the ECB have so far positively affected the profitability of commercial banks through an increase in the net interest margin (because loan rates are readjusted immediately while deposit rates with a significant time lag). However, this, he said, is not expected to continue, due to the gradual increase in deposit rates, the increase in funding costs in the money markets and the decrease in demand for loans.

He also recommended caution for non-banking financial sector businesses, money market mutual funds, hedge funds, private equity funds, asset management companies, insurance companies, pension funds, etc., as higher interest rates, the low rate of economic growth and high valuations of financial assets are a cause for concern, much more so due to the various forms of banks’ exposure to the non-banking financial sector.

Referring finally to the fiscal developments, he argued that it is imperative that the fiscal stance remains restrictive and that the new fiscal rules (which are more flexible and avoid the pro-cyclicality of the previous ones) apply in the eurozone from the beginning of 2024.