European bank rates likely to remain high for another year

Interest rates in Europe look set to stay at their current high level for at least another year, according to CBRE Investment management’ head of treasury and debt financing Duco Mook.

The reduced number of transactions and fewer disposals are helping to reduce liquidity compared to previous years.

“Banks need to hold more equity following increased regulation,” Mook told Real Asset Insight’s Richard Betts during a recent interview. “They’re getting less money back following no transactions,” he added. Interest rates have increased so much that loan-to-value ratios need to be reduced and banks are more conservative. “They’re focusing on their own clients but need to be very selective with their equity to see where they can deploy their liquidity.”

Mook said that the interest rate increases have all been greater than the market was expectingand their volatility made it difficult for asset managers to underwrite long term cost of debt.

“What you see since June 2023 is that interest rates seem to have stabilised,” he said, adding that long-term swap rates indicate that this situation is calming down and the market is becoming more stable which will make underwriting easier.

“Inflation in Europe is coming down but it’s not coming down so rapidly that the ECB will decide to lower their rates. Only once inflation is at the preferred 2% with an outlook to stay at 2% will they consider lowering their rates.”

This, however, is contrary to the situation in the UK and US, he added.