only 20% of banks plan to pay families more

Published
07/05/2022 04:45

Updated
07/05/2022 04:51

The first increase in the price of money in Europe in more than a decade will hardly arouse the attractiveness in the profitability of deposits. The big European banks rule out a liabilities war to gain clients and only 20% admit that they will raise remunerations for the most traditional family savings product in the coming months. This is how bank executives advance it to the European Banking Authority (EBA).

The profitability of deposits is sunk close to 0% in the last seven years. In Spain, the average rate that entities pay families stood at a meager 0.05% in April, according to the latest data available from the Bank of Spain. In any case, the change in the ECB’s monetary policy, which plans to raise interest rates to 0.25% already in July, caused some movements, especially from foreign online banks.

Several European entities pay rates above 1% APR, but require to retain the money for at least two years. This is the case of the online bank Renault Bank, which launched a 24-month deposit a few weeks ago with an interest rate of 1.10%. The Spanish hoard almost a trillion euros in deposits, a record figure that was accentuated with the arrival of the pandemic despite the fact that they offer almost zero profitability.

According to data from the EBA, more than half of European banks rule out modifying their current commercial policy on deposits. This is one of the main conclusions of the semi-annual report on the risks of the banking sector carried out by the European regulator every six months and that includes questions on burning issues to 60 of the large entities in Europe.

Among these banks are the top five in Spain: Santander, BBVA, CaixaBank, Sabadell and Bankinter. And so are most of its big European competitors, such as Intesa Sanpaolo, UniCredit, Deutsche Bank, Société Générale and BNP Paribas. In addition, the perspectives of analysts are collected, which collide flatly with the vision of bank managers: 80% expect an upward repricing of deposits.

The EBA received the answers in April, when the market was already beginning to discount that the ECB would raise the price of money to contain the impact of the war in Ukraine on inflation. Although in recent days it has been suggested that the central bank will have to accelerate the pace of rate hikes. Even some analysts begin to slip that in 2023 the ECB would have to start cutting rates to avoid an economic recession.

Company deposits

The new rate scenario in the eurozone will have better consequences on company deposits. 35% of the entities anticipate that they plan to increase the profitability of the money that the companies hoard. It must be taken into account that in the case of Spain, banks have charged large companies and institutional clients for their deposits since 2019, as a measure to transfer the cost they face for having excess liquidity at the ECB. The ECB’s deposit facility went negative in 2014 and now stands at -0.5%.

In any case, the new era of the price of money will not have notable benefits for companies and families, at least in the short term. Perhaps that is why the ECB is studying formulas that allow limiting the billions in extraordinary benefits for banks derived from the ‘ultra-cheap’ loan program due to Covidas reported yesterday by the newspaper Financial Times. The rise in the price of money could inject up to 24,000 million in profits to the entities for these credits in favorable conditions and that sought to avoid a collapse due to the pandemic.