The European Central Bank (ECB) appears set to pause its cycle of interest rate cuts after eight consecutive reductions between September 2024 and June 2025. Economists now anticipate that eurozone rates will remain steady through at least the end of 2026, with some predicting hikes could come sooner.
Until recently, markets expected another 25 basis point cut before year’s end. That outlook has shifted, with forecasts now suggesting the ECB’s deposit facility rate will hold at 2% before rising again.
For banks, the shift means an end to declining net interest income and a more predictable environment for lending and investment products. With rates stabilizing, financial institutions are expected to accelerate credit growth, improve returns for shareholders and strengthen profitability.
Impact on banks
- Interest income: Net interest income among the four largest banking groups in Greece fell about 2.5% in the first half of 2025 compared to last year, mainly because most loans are linked to floating rates. With ECB rates expected to remain unchanged, no further declines are anticipated.
- New lending: With Euribor around 2%, banks can offer more attractive loan terms for households and businesses, spurring demand. Sector plans already point to €12 billion in net new lending this year, with potential for even higher growth if conditions hold.
- Fee income: Lower deposit and bond yields have made traditional savings products less appealing, opening opportunities for banks to market investment and savings programs that promise higher returns based on customer profiles.
Analysts note that this pause supports banks’ business strategies while improving prospects for 2026. As long as the macroeconomic environment remains stable, lenders could benefit from rising demand for credit and investment services in the coming years.
