Cost of deposits and Euribor: Why this time is different
Fecha: mayo 2023
Marta Alberni, Ángel Berges and María Rodríguez
More than one year after 12-month Euribor abandoned negative terrain, after rallying to levels not seen since before the financial crisis, the big dilemma facing the banks is at what pace and to what extent they
should pass the increase in market rates on to their customers, embodied by the so-called ‘beta’ coefficient, by analogy with that used in the equity markets to measure share price sensitivity to the market index. So far, the percentage of the buildup in Euribor that gets passed through, or the deposit beta, in Spain is proving smaller than that being observed on the asset (lending) side of the business and in other European countries, drawing sharp attention from the media. Compared to past episodes of rate tightening in Spain, we are seeing a weaker/slower pass-through beta this time around, in particular in the case of term deposits. However, the loan passthrough beta is also lower by comparison with other periods on account of the intensity of the upward shift in the curve, the effect of rate repricing on the banks’ portfolios and the relatively higher weight of fixed-rate loans at present. In any event, any analysis of the current situation requires taking stock of the banks’ holistic pricing strategy as a function of their combined positioning in assets and liabilities, the make-up of their customer bases on both sides of the business and their transformation and capital cost structures. Nevertheless, sooner or later, competitive pressure is bound to drive an increase in the deposit beta.