The bank is ready to pay for the money of its clients with maximum deposits

The ECB has raised interest rates again. It is the second time after the one at the beginning of the summer and it has been the highest in its history. 0.75 points more. The first reaction of households has been to think about their mortgage. Although the ECB does not directly mark the increases, but rather the evolution of the Euribor, the truth is that a rise in cost is expected in the coming months after years with negative rates. Households will have to face a higher monthly payment of their debts. However, the change in monetary policy has another effect for savers and that is that, after years without remuneration, banks will have to pay again for the money that customers have in their accounts.

For the past few years, having money in the bank had virtually no return for savers. That is to say, they did not give any return for those who left the money in the bank without added products. The entities were eliminating the benefits for the clients for depositing their money in them. The evolution of negative interest rates was such that the debate on charging customers to keep their savings was even opened in the sector. In the end, this debate did not prosper for households, although it did for large companies and institutions, which had to pay to leave their money in a bank.

What the banks did do was restrict the conditions for having an account to collect a payroll or leave money. Many entities imposed new requirements such as greater linkage in order to avoid commissions. In addition, since deposits were not remunerated, other complementary businesses grew, such as the management of investment funds or pension plans, encouraging savers to seek ways to increase the value of their money. These new businesses have been a gold mine for banks to increase their commission income.

Now, the ECB's decision is expected to have changes in this deposit service. The rise in rates allows banks to have a higher yield for leaving money deposited in the ECB and this, in turn, will lead to entities doing the same for their clients. For the time being, movements in company deposits have already been noted. As explained by Expansion, statistics show that banks have returned to pay for the money of companies and interest rates have returned to positive scenarios after almost three years. Now the next step remains, that it be extended to savers in a general way.

Households face this new scenario with deposits at maximum levels. According to statistics from the Bank of Spain, they had 997,000 million euros saved in bank deposits at the end of July. In other words, households add almost a trillion euros in deposits that, depending on some entities, practically do not give them any return. It is the highest level recorded by the Spanish banking supervisor and represents an increase during the first seven months of the year of almost 40,000 million euros. For comparison, they are 300,000 million euros more than in 2008 when the real estate bubble burst. Household savings have been growing practically steadily since the pandemic broke out in March 2020, although it has accelerated so far this year.

The remuneration of deposits is not going to be as automatic as the increase in the cost of mortgages has been. The banks have waited for interest rate hikes by the ECB until they finalize their strategies and during the last presentation of results, held at the end of July, the bankers opted for caution until the levels of the hikes were specified. However, banks have already made loans more expensive since they are linked to the Euribor, a rate that, although linked to the decisions of the monetary authority, has an independent evolution and already began to rise in March.

This has an immediate effect on banks' margins, although it is likely to be temporary. If what you charge customers for loans is raised and what can be remunerated for their deposits is delayed, the net income of the bank increases. In any case, it is expected that the rise in rates will have a positive effect on banks' margins since what they earn from charging more in financing weighs more than what they pay in turn to other entities or their clients . It is at this point where the new tax promoted by the Government comes in and will tax for two years 4.8% of interest and commissions. The rule starts next week its processing in the Congress of Deputies.

The movement between competitors will mark the speed at which banks will begin to pay for deposits. For the moment, the big banks have made some moves, although still at low levels. On the contrary, the small financial institutions are the ones that are positioning themselves to try to capture customer deposits. Two of the actors who have positioned themselves the most in what is expected to be a new battle in the sector are, precisely, from outside the banking sector. Renault Bank and Orange Bank, financiers of both companies, have made two announcements this summer of raising the remuneration of deposits. At 1.2% APR the first and at 0.7%, the second.

Pibank, subsidiary in Spain of the Ecuadorian bank Pichincha; the Portuguese Finantia; Deutsche Bank; o Myinvestor have been some entities that, due to business volume in Spain, are small, but that seek to expand their positions among customer deposits.

The change of reality in deposits has also raised concern among supervisors. A few weeks ago, the Financial Times reported that the ECB was looking at ways to try to limit the windfall profits that banks can make from the change in monetary policy. During the pandemic, the agency granted negative-rate loans to banks to increase financing for the economy. Now, the ECB has increased the rates for deposits that banks have on their balance sheets. The institution chaired by Christine Lagarde seeks to prevent banks from using the cheap money they received to deposit it in the ECB and thus obtain greater profitability. Estimates spoke of up to 20,000 million extraordinary profit for banks with this operation.

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