Irish banks are among a small group of lenders in the eurozone that are likely to continue to tap increases in profitability in 2024, as the deposit rates they offer customers for savings rises at a relatively slower pace than the rates they charge borrowers for their loans, ratings firm DBRS Morningstar has said in a major Europe-wide report.
The ‘European Banking Outlook 2024’ report shows that “with few exceptions” European banks this year have boosted their net interest margins — a profitability measure for lenders that tracks the difference between what they charge borrowers for their loans and the rate they pay out on deposits, as official rates rise.
Ireland’s banks have so far this year posted among the highest levels of net interest margin in Europe for reasons that can include that lenders have not passed on much of the official rate hikes to their depositors.
For 2024, Irish banks may continue to increase profitability should they continue to raise interest rates on loans but pass on deposit rate increases at a relatively slower pace.
“In some countries, where deposit betas are low and loans are still repricing, such as Ireland and Spain, benefits are expected to extend into 2024,” DBRS said.
However, if deposit costs start to rise, AIB might see its profitability reduced due to the large sensitivity of its net interest margin to “the deposit beta” or the pass-on rate to customers.
Shares in AIB have climbed over 16% since the start of the year and are trading 47% up from levels of November 2022; Bank of Ireland shares have fallen 4% this year but trade 18% higher from a year ago; and PTSB shares are 6% lower from a year ago.
