Despite declining interest rates, MLP's banking business looks set to remain strong. In detail:

Generation of interest income: MLP's banking business comprises € 3bn of interest receiving assets with an average interest rate of 3% from three different pillars: (1) Loans given out to MLP customers (43%), mainly for real estate and medical practice financing, (2) Deposits at commercial banks (25%) held as investment purposes as part of the banking business and (3) deposits at central banks (32%).

Interest payments to customers: MLP's customers have deposited € 2.9bn, for which MLP currently pays 1.2% interest on average (per H1; annualized), in three types of accounts: (1) checking accounts for 0% interest p.a., (2) overnight deposits for currently 1.5% interest p.a., and (3) time deposits for currently 2.75% interest p.a. Here, the mix of deposits is undisclosed, but our ballpark estimate would be 40% in checking accounts, 30% in overnight deposits and 30% in time deposits (eNuW).

What changes with falling ECB rates: With a decline of ECB rates (as expected by the ECB Survey of Professional Forecasters and us respectively), we expect a proportionate decline in average interest rate received, but only for short-term maturity commercial and central bank deposits (57% of int. receiving assets). On the other hand, the longer-term maturity fixed-rate loans given to MLP's customers should show stable or slightly rising interest rates, as here the change in ECB rate drop comes into effect with a substantial delay and the loan book should gradually shift towards higher rate loans as old loans from the low interest rate are running out. For interest expenses, we also expect MLP to reduce interest rates on short-term maturity deposits proportionately to the ECB rate decline, in order to protect the net interest margin of currently 61% (H1'24). As the changes of interest receiving assets and customer deposits are unpredictable, we model no changes here. - see p. 2 for details

Net interest income to peak now, but to remain at solid levels going forward: In our base case scenario, reflecting current market expectation for rate declines and assuming changes at neither int. receiving assets nor customer deposits, we expect a net interest income of € 46m in FY'25e (€ 41m in FY'26e), both at solid levels, reflecting a "new normal" after years of low interest rates. - continued -

Furthermore, we conduct a sensitiviy analysis (for FY'26e) in order to assess the impact of deviations from our  assumptions (see below), showing net interest incomes in the range of € 23m to € 65m.

Against this backdrop, we remain confident that MLP remains on track to reach its guidance and continue to grow earnings and thus reiterate our BUY recommendation with unchanged PT of € 11.50, based on FCFY'24e and SOTP.