Most German banks are imposing negative rates on corporate clients
Practice proves controversial in country where ECB has been accused of penalising savers
Almost 60 per cent of German banks are charging negative interest rates on the deposits of corporate clients and more than 20 per cent are doing the same for retail customers, according to new data published on Monday.
The figures, revealed in a survey by the German central bank, give one of the clearest indications of how many lenders are charging customers to deposit money since the European Central Bank cut interest rates deeper into negative territory in mid-September.
The Bundesbank surveyed 220 lenders at the end of September — two weeks after the ECB’s cut its deposit rate from minus 0.4 to a record low of minus 0.5 per cent. In response, 58 per cent of the banks said they were levying negative rates on some corporate deposits and 23 per cent said they were doing the same for retail depositors.
While most of the lenders are passing on negative rates only to institutions, companies or individuals with large deposits, the practice has proved particularly controversial in Germany, where the ECB has been attacked for penalising prudent savers.
Germany’s Bild tabloid depicted Mario Draghi, the recently retired ECB president, as “Count Draghila”, a vampire sucking dry the accounts of savers.
James von Moltke, Deutsche Bank’s chief financial officer, last month told analysts that Germany’s largest lender had stepped up its attempts to pass on negative interest rates to clients after concluding it could do so for about a fifth of all its retail deposits.
“This is more difficult in the private bank business than in corporate or institutional deposits and we don’t see an ability to adjust legal terms and conditions of our accounts on a broad-based basis,” said Mr von Moltke, adding that Deutsche was instead approaching retail clients with large deposits on an individual basis.
Stephan Engels, Commerzbank’s chief financial officer, said this month that Germany’s second-largest listed lender had started to approach wealthy retail customers holding deposits of more than €1m.
In one of the most aggressive moves in the sector, Berliner Volksbank said last month that it would start applying a minus 0.5 per cent rate on any deposits above €100,000 at the country’s biggest co-operative lender.
Negative interest rates were first introduced in the eurozone in June 2014 to boost a flagging economy by nudging banks into lending more money, rather than leaving excess liquidity languishing at the central bank.
But the knock-on effect has been to further dent the already strained earnings of Europe’s banks, which hold a combined €1.9tn of reserves at the ECB to satisfy post-crisis liquidity regulations.
According to Biallo.de, a German price comparison website, 140 lenders in Germany have already started to charge negative interest rates.
State-owned German development bank KfW is preparing to pass on negative interest rates to its borrowers — paying them to borrow money. KfW is legally obliged to pass on its own funding terms to clients and it can already refinance itself at negative rates. “We don’t know if and when we might offer loans at negative interest rates, but from a technical point of view, we want to be ready to do so,” it said.
To give banks some relief from the cost of negative rates, the ECB introduced a “tiering” system that exempts part of their deposits with the central bank from the charges.
Luis de Guindos, vice-president of the ECB, said in a speech on Monday that the profitability of European banks had been “persistently low” and their aggregate return on equity dipped below 6 per cent in the year to June. But he said negative interest rates were not the main cause, blaming a lack of consolidation and bloated costs compared with US and Nordic rivals.