The five-year low and negative interest rate policy pursued by the European Central Bank (ECB) is worrying eurozone banks, which are expecting a further imminent drop in the price of money.
How does this strategy affect banks, but also their customers and savers?
What impact for the banks?
The ECB decides the monetary policy of the 19 member countries of the euro zone, fixing in particular the level of interest rate said "directors". These rates affect banks' cost of credit and savings performance.
Since March 2016, the monetary institution has lowered its main policy rate to 0%, which allows banks to borrow free cash for a period of one week.
In addition, since the summer of 2014, the ECB has been financially sanctioning banks when they place short-term liquidity surpluses with it. The deposit rate currently stands at -0.40%.
Banks are required to hold funds with the ECB in order to cope with withdrawals from their clients. However, they generally deposit much more than this mandatory amount.
These interest rates are therefore a crucial tool: by pushing down the cost of credit and charging banks that store money rather than lend it, the central bank intends to stimulate economic activity.
Problem, "since the introduction of this negative rate on deposits, it is expensive for banks," says AFP Eric Dor, director of economic studies at the IESEG Management School.
"It is estimated that the current rate on excess liquidity, it costs about 7.5 billion euros per year to banks in the euro area," said Mr. Dor.
More broadly, this policy directly affects banks' profitability on their lending business by further reducing the margin between the interest rate at which banks lend and the rate at which they refinance.
Since the end of July, the horizon for the European banking sector has been clouded, which anticipates a further decline in ECB rates in mid-September.
"At the beginning of the year, the players expected a rise in rates in the second half, and finally we are on a prospect of even lower rates and for longer," says AFP Nicolas Malaterre, senior director in charge of the banking sector in France for the rating agency S & P Global Ratings.
"The profitability of banks in the euro area, already under pressure, may become a more structural problem," he adds.
As a result, banks must convince investors of their commercial capacity to face sustainable negative rates while complying with the regulatory requirements that require them to set aside additional capital to meet potential financial shocks.
Banking groups whose revenues depend mainly on lending and deposit activity, such as the German regional banks, suffer more from this environment than diversified banks in financial services, insurance or investment and investment banking. as is the case of French institutions.
What consequences for customers and savers?
Until now, only business customers could be billed for large deposits with a bank, but according to a survey conducted in Germany in July, about thirty banks in the country have decided to tap their wealthiest clients whose deposits reach at least 100,000 euros.
Nevertheless, this practice is still rare in the euro zone, where there is fierce competition between banks, which has to conquer more customers to compensate for their loss of margin.
The competitive rate mortgage has thus become their main bait, benefiting the new borrowers who appear as the big winners of the ECB's strategy.
Investors in financial investments, on the other hand, appear to be losers as the returns of many savings products have fallen in line with rates. A particularly sensitive topic in Germany, where many retirees relied on their financial savings.
Negative rates make them lose their attractiveness to safe financial investments, and "induce excessive risk-taking, both by individuals and investment funds seeking at all costs from yield and going to riskier products, it is a danger, "says economist Eric Dor.
© 2019 AFP