Can banks benefit from an increase in interest rates? Frankly, they are already benefiting from the recent stock market revaluations. But, beyond expectations of rising interest rates (which also benefit them through a steeper yield curve), in my view it is clear that in the short and medium term the benefits outweigh the risks arising from monetary normalisation.
That is the key: we are talking about removing the excess of expansionary financial conditions. And this is a good scenario for banks, with financial conditions still favourable for growth, the private sector deleveraging coming to an end, and improving margins. But, above all, lower future risks arising precisely from excesses in monetary policy.
The above does not mean that we question the past benefits of a monetary policy such as the current one. Let us consider the capital gains obtained, the ease of repayment and access to credit for borrowers, and the resulting reduction in non-performing loans. But the issue now is to look to the future. And in the future, under the stability of current financial conditions, margin deterioration will persist, with zero interest rates and a flat curve, and, clearly, the exhaustion of capital gains. If we also consider complex regulation and growing non-bank competition, you will readily understand why a shift in the monetary policy stance is positive for banks.
