2023-04-26 05:03:45
In 2008, Belgian households taken as a whole received 10.7 billion euros in interest on their savings (bonds, savings accounts, etc.). In 2022, barely 2.1 billion euros according to a note published by Eric Dor, director of Economic Studies at the IESEG School of Management in Paris and Lille. “Compared to what this interest income would have been had it remained at its 2008 amounthe writes in this note, their cumulative loss from 2009 to 2022 is 87,543 million euros. It is a measure of the loss of earnings of savers in Belgium, due to the fall in interest rates. Interview.
This shortfall for Belgian savers that you mention in this research note, it is colossal, isn’t it?
Eric Dor : “Yes, it’s quite colossal. You can say that since 2008, that is, the moment from which central bank interest rates started to decrease, causing all interest rates to market interest in their fall, well, Belgian savers lost 80% of their interest income.”
Central banks change interest rates according to the evolution of the economy, suddenly it goes up, suddenly it goes down. Isn’t it normal that interest income also varies?
“OYeah, that’s part of the game, but we can say that we experienced a drop in interest rates that was historically exceptional. We must not forget that at one point, in the euro zone, the key rates – this is the name given to the rates of the European Central Bank (ECB) – were even negative! This was the case for the deposit facility rate, the rate banks receive when they deposit money at the central bank. That was exceptional. Even the Americans didn’t.“
Overall interest rates have fallen since the financial crisis of 2008 until last year. There they began to come up fast and strong. A radical change of course?
“EIndeed, and this is essentially due to the surge in inflation that we have experienced following the geopolitical crisis, war in Ukraine, runaway energy prices, etc. Central banks had to start fighting excessive inflation. They therefore began to increase rates from July 2022. Since this change of course, the ECB has already increased its key rates by 3.5%!”
It is the backdrop. But in your note, you note above all that in Belgium, the commercial banks have not taken action at all, they have not boosted the remuneration of savings accounts…
“Indeed and, according to the ECB (the latest figures are from February), the average rate that Belgian banks pay on their customers’ savings deposits is 0.35%. This is extremely low. This average rate has increased by 0.27% since the low point which dates back to April 2022. Compared to the 3.5% increase in the key rates of the ECB, this is insignificant.
While, at the same time, the Belgian banks passed on the rise in rates to new loans but not really to household savings, is that the reality?
“The rates that banks charge on their new loans to their customers, whether businesses or households, have already gone up quite a bit, that’s clear. Of course, the rate increases are for new loans. Old loans granted at a fixed rate do not change, but when we look at the average rate on the total [des crédits]we see that this average rate has nevertheless increased more than the unfortunate 0.27% increase in the rates offered on savings deposits.“
Should we take into account the fact that, when they deposit money at the National Bank, Belgian banks receive a much higher remuneration than what they offer to savers?
“Ah yes, there is a real windfall effect there, which is well documented and which applies to all the countries of the euro zone moreover. The Belgian banks have 262 billion of excess liquidities which are deposited on the deposit at the National Bank of Belgium. These deposits are remunerated at 3%. So you see that, on the liabilities side of their balance sheet, they have money collected on savings deposits on which they pay on average 0, 35%.But on the other side of their balance sheet, they have 262 billion invested at 3%.They therefore benefit from a huge interest margin which feeds their profitability.“
Isn’t this a fair return following several difficult years for the banking sector?
“Overall, the profitability of the banks nevertheless held up well to the period of falling interest rates because they were able to compensate for the lower interest rate margins by increasing all the commission transactions on which they were nevertheless able generate good income. That said, let’s remember all the same that it is in our interest that our banks are solid and profitable, since that is where we have our money. We also rely on banks to finance us. a household to buy back their house or a business to invest in. But we can still say that it would currently be possible for banks, without compromising their profitability, to increase the remuneration they offer on savings accounts.“
Can we say that, since the Belgian banks already have a lot of savings deposits, in reality they do not need – or even do not want – additional deposits and that maintaining very low interest rates means is a way to discourage their customers?
“The first reason that may explain why Belgian banks are very slow to increase the remuneration of savings is the inertia of customers. Many depositors actually leave their money in very poorly remunerated savings accounts, often without even trying to migrate their savings to banks that offer better conditions. Then, indeed, there is the fact that our banks are already gorged with liquidity following the expansionist policy of the ECB during all the years, where it was struggling rather once morest deflation than once morest inflation. And because of that, effectively, our banks do not really need to compete to attract new deposits. And therefore they are not really pushed to offer a better remuneration of the ‘saving.”
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