MADRID, March 23 (Reuters) - Spain's Bankinter (BKT.MC) warned on Thursday that banks faced a range of negative side effects of higher interest rates in the medium term, such as an increased cost of credit and liquidity restrictions.
"We must be aware that, while higher interest rates normally have a clearly positive effect on banks' profit and loss accounts in the short term, in the medium term they raise the cost of liabilities and restrict liquidity, which is already happening," Chairman Pedro Guerrero told shareholders at the bank's annual meeting.
The ECB has increased the rate it pays on bank deposits by a record-breaking 350 basis points to 3% since July.
Guerrero said that the persistence of inflation and an eventual worsening of the labour market, together with the rise in interest rates, "may lead to a reduction in debtors' ability to pay", which could lead to higher loan loss provisions.
The collapse of U.S. lender Silicon Valley Bank and UBS group's (UBSG.S) state-backed takeover of Credit Suisse last weekend have increased volatility and hit banking shares.
Since the beginning of the market turmoil on March 9, shares in Bankinter, the country's fifth-biggest bank by market value, have fallen 20%. On Thursday, the shares were down 1.6%.
Bankinter CEO Maria Dolores Dancausa said earlier that the bank had sound liquidity and capital levels to withstand adverse macroeconomic shocks, as had been demonstrated in all the stress tests to which it had been subjected.
In 2022, the bank also finished with a coverage liquidity ratio of 193.5%, well above the average of 140% in the global banking sector, according to data from the Swiss-based Basel Committee on Banking Supervision. A higher liquidity ratio shows a bank has better coverage of outstanding debts.
Bankinter also finished with a fully-loaded core tier-1 capital ratio, the strictest measure of solvency, of 11.90%, above the 7.726% ratio required by the ECB.
