European Central Bank interest rate hikes are in their final stretch, ECB Vice President Luis de Guindos told an Italian newspaper, while warning that higher borrowing costs could put stress on banks' asset quality, even if indicators so far remain healthy.
The ECB has raised rates by a combined 375 basis points since last July and has promised further increases, but at a more measured pace of 25 basis point increments, after oversized moves in the early part of its tightening campaign.
These rate hikes improve banks' lending margins but could also make it more difficult for some borrowers to repay their debts, lifting the portion of non-performing loans or NPLs. "The combination of a slowing economy and the interest rate hikes will bring a rise in the cost of funding for banks and possibly an increase in non-performing loans."
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