(Bloomberg) -- UniCredit SpA Chief Executive Officer Andrea Orcel said the boost from higher official interest rates will soon turn into a drag on profitability, as depositors begin to demand more interest on their deposits.

“From the second quarter of this year we are going to have a reverse, where rates are going to go up less, but the so-called pass through is going to increase,” Orcel said Monday, in an interview with Francine Lacqua at the Bloomberg Capital Markets Forum in Milan. “That will create a headwind for all banks.”

Europe’s largest banks posted a quarter-on-quarter drop in net interest income during the first three months of the year, snapping a streak of four large consecutive jumps that had boosted profitability. Lending revenue also helped UniCredit post its best-ever first quarter last month, helping the bank raise its full-year profit target and confirm one of the region’s most generous investor payouts. 

Orcel said that he would be open for another term as CEO of the bank when his first mandate expires next year. He was appointed for a three-year term in April 2021, marking his return to the top tier of European banking after he left his job as head of UBS Group AG’s investment bank in 2018. 

Under his tenure, UniCredit’s profitability and shareholder returns have soared, more than doubling the stock compared with a 17% increase of the STOXX 600 Banks Index, a benchmark for European lenders. 

“The job is certainly not done, and I think UniCredit Unlocked has a lot further to go,” Orcel said, citing the lender’s 2022-2024 business plan, which he unveiled a few months after his appointment. “Assuming investors and shareholders will vote me, I’ll definitely be up for more.”

UniCredit’s board of directors is set to be renewed in the spring of next year at the 2024 annual meeting. The bank’s current board approves the list of candidates, including the proposed CEO and chairman, on the basis of the advisory activities that usually starts the year before.

On deposits, Orcel has said the pass-through rate will rise from 10% to 40% by year end, joining other executives in highlighting that intensifying competition forces them to offer better terms. German peer Commerzbank AG has estimated that it will end up sharing a third of what it earns on deposits with clients by the end of the year, up from just 15% in the first quarter. 


(Updates with further details on CEO mandate)

©2023 Bloomberg L.P.