DBRS Says Greek Banks ‘Shielded’ from ECB Rate Cuts

Global credit rating agency Morningstar DBRS cites the value of capital in the Recovery and Resilience Fund (RRF) for maintaining credit growth in beneficiary countries, including Greece.

According to Morningstar DBRS, banks in countries like Portugal, Greece, and Ireland may see the steepest annual declines in Net Interest Margins (NIM) in 2025, followed by Spain and Italy. However, the impact could be mitigated or delayed if banks employ effective countermeasures.

The agency explains that fund disbursements through the banking sector will help offset pressures anticipated on interest margins beginning in 2025, due to expected rate cuts by the European Central Bank (ECB).

In Greece, where most mortgages are set at variable interest rates, an interest rate cap implemented in May 2023 has reduced potential risks from the upcoming ECB rate cuts. As a result, the Canadian-based rating agency does not forecast any additional effects in 2025. These measures have supported healthy profit margins for Greek banks.

Morningstar DBRS expects European banks to maintain improved performance throughout 2025, following an unusually strong wave of positive credit rating actions in 2024. The agency anticipates that while profits will remain robust, they may fall short of the record levels seen in 2023 and 2024. Although interest income is likely to decline as margins narrow, this will be offset by a stronger pace in loan growth. Operational costs are also expected to rise, though at a slower rate.

On the upside, Morningstar DBRS forecasts further growth in fee-based revenue and stable risk costs. Structural profitability differences among European countries are expected to persist into 2025.