Interest rate pass through in the deposit and loan products provided by Greek banks

Panagiotis Lazaris (), Anastasios Petropoulos, Vasileios Siakoulis, Evangelos Stavroulakis and Nikolaos Vlachogiannakis
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Panagiotis Lazaris: Bank of Greece
Anastasios Petropoulos: Bank of Greece
Vasileios Siakoulis: Bank of Greece
Evangelos Stavroulakis: Bank of Greece
Nikolaos Vlachogiannakis: Bank of Greece

No 287, Working Papers from Bank of Greece

Abstract: A core input in performing a regulatory stress test is the evolution of interest rates, as it affects the income generated from the assets’ side and the expenses from the liabilities’ side. In this work, we apply an autoregressive model with distributed lags (ADL) to quantify the pass through rates, that is, the degree and speed of incorporation of the changes of money market rates by banks into their customers deposit and loan rates. In doing so, for the liabilities’ side, we differentiate between open and term deposits, as well as between households and non-financial corporates. Our results indicate that for term deposits the long-term pass through rate is very high, exceeding 91% for non-financial corporate customers and 81% for households. For open deposits, the pass through rate dynamics appear less prevalent, amounting to 21% for non-financial corporate customers and 16% for households. When exploring the pass through rate dynamics in the assets’ side of the banks, we observe full long-term pass-through of money market rates, for mortgage and consumer loans. By contrast, the non-financial corporate loans rate is stickier and less reactive to money market rates changes, with long-term pass-through adjustment being approximately equal to 40%. Furthermore, our results provide evidence that the Greek sovereign spread movement has practically negligible pass through rate both for loan and deposit products. In particular, it hardly affects the pricing of new term deposits, with a pass through rate of around 5%. This finding can be attributed, among others factors, to the fact that the Greek sovereign credit spread has approached several times non-tradable territories, which makes it an insignificant variable in determining customer rates.

Keywords: interest rate pass-through; bank products; stress testing. (search for similar items in EconPapers)
JEL-codes: C22 G14 G17 (search for similar items in EconPapers)
Pages: 39
Date: 2021-02
New Economics Papers: this item is included in nep-ban and nep-eec
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