The floodgates for negative interest rates have opened in Germany’s banking world.
More and more large corporate customers are facing charges for depositing their money with a bank. It is a consequence of actions by the European Central Bank, which is desperate for customers to get out and spend their money to give the 18-nation euro-zone economy a boost.
Commerzbank, Germany’s second-largest bank, admitted on Wednesday evening that it will start charging money for large corporate deposits, becoming the largest German bank to publicly acknowledge its actions. The bank in a statement said it “reserves the right” to hold talks with large companies and institutional investors about charging them for their cash. The negotiations will take place on a case-by-case basis with customers who hold “large and surplus liquidity” with the bank.
German companies are not happy – but they blame the ECB rather than the banks.
“The banks have to think about whether it makes sense for them to risk larger business groups over a few hundred percentage points.”
“The side effects of the current monetary policy in Europe are now beginning to show. Instead of encouraging investment, the ECB’s negative deposit rates are becoming a further burden on the economy,” Martin Wansleben, the head of Germany’s Chamber of Commerce and Industry, DIHK, said in an e-mailed statement to Handelsblatt Global Edition.
“To really encourage investment, we need the right policy incentives. These include structural reform in crisis countries. In Germany too, we need to stop further burdening companies,” Mr. Wansleben added.
Private consumers remain unaffected by Commerzbank’s new policy, as do small- and medium-sized companies, the bank said.
But it does mark a slippery slope for the banking industry. Back in June, institutional investors told Handelsblatt they were facing negative rates from Commerzbank and Deutsche Bank, Germany’s largest bank. At that time, large companies said they were being spared from the fees.
Financial sources say that Deutsche Bank, too, is now in talks about negative interest rates with its largest corporate clients, though the bank insists there will be no broad policy for introducing deposit fees on corporate customers. Institutional investors are also being spared for the moment, though sources said they are being encouraged to take up alternative products like timed deposits rather than simply leaving their money with the bank.
It is the European Central Bank that got the ball rolling in June, when it became the first major bank in history to say it was charging banks to park their excess reserves with the central bank. Financial firms in the 18-nation euro-zone must now pay 0.2 percent interest on any money they choose to leave with the ECB rather than lend out to customers.
The policy is designed to revive the euro-zone’s economy, which grew only 0.2 percent in the third quarter of this year. Bank lending to the private sector in the euro zone continues to shrink – falling 1.2 percent in September – and the ECB is doing everything in its power to convince Europe’s banks to lend out the money rather than leave it sitting in their vaults.
But the ECB’s message is also directed at the banks’ customers: Companies and consumers should be spending their money rather than saving it.
Banks have long complained that there is a lack of demand for their loans – and so are passing the costs on to their customers instead. A study from consulting firm Barkow Consulting last month found that deposits from businesses and private savers totaled €2.317 trillion ($2.95 trillion) in May 2014, exceeding for the second time this year the banks’ total credit volume.
Even Germany’s economy has struggled in recent months. Many companies in Germany are hoarding cash as a result of the uncertain economic situation. Large blue-chip companies have squared away €138 billion (€172 billion) as their profits continue to rise. The ECB is hoping to give these companies a push to spend the money instead.
Exactly how companies will respond remains unclear. Some could simply switch banks. Others might be encouraged to spend a little more. Monica Fernandez, who leads credit research of corporates at Germany’s DZ Bank, said it is possible that negative deposit rates could serve as the “ignition” for increased mergers and acquisitions activity next year.
Other companies are reacting to the bank fees by paying their shareholders more dividends, which according to Handelsblatt research could reach record levels in Germany in 2015.
“Instead of encouraging investment, the ECB’s negative deposit rates are becoming a further burden on the economy.”
Still, the impact on the economy is likely to be minimal. German companies are not spending because they haven’t found places to invest profitably, said Timo Klein, senior economist with IHS Global Insight. Banks might therefore be shooting themselves in the foot: Companies could be tempted to move their money to other banks – or even overseas.
“The banks have to think about whether it makes sense for them to risk larger business groups over a few hundred percentage points,” Mr. Klein told the Handelsblatt Global Edition.
The irony is that Germany is not necessarily the economy that needs lending incentives the most, Mr. Klein also noted. Germany is doing relatively well compared to other parts of Europe, especially Italy and France. The fact that German banks are the ones charging for deposits is another sign of the problems still facing the ECB – those economies that really need the help are still facing higher interest rates.
While bank fees are becoming a new reality for large corporations in Germany, consumers have so far been largely spared. Skatbank, a small cooperative bank, earlier this month became the first bank to announce it was charging private customers with savings of more than €500,000. The development sparked a furor in the German media. The bank has since retreated somewhat by raising the level at which it starts charging negative interest to €3 million.
Germany is not the only country facing the problem, though the spread is limited. Luxembourg-based bank DZ Privatbank said it would introduce negative interest rates of 0.25 percent on its customers, according to an e-mailed statement to customers that was obtained by WirtschaftsWoche, a business weekly and sister-publication of Handelsblatt.
German banking regulators aren’t necessarily happy about the new developments, but there is little they can do about it. Andreas Dombret, a board member of Germany’s central bank, the Bundesbank, earlier this month complained that such policies would discourage savings, but he said the central bank was unlikely to step in.
Deutsche Bank chief executive, Jürgen Fitschen, who also heads the German banking association Bankenverband, has said it is up to each bank to decide whether they want to go down the negative interest rate road.
While such rates are becoming a new normal for major corporates, many banking groups continue to specify that charging private customers is out of bounds. A spokesman for the BVR, the association of cooperative banks in Germany, said the group “continues to speak out against negative interest rates for deposits of private customers.” The association of German savings banks has also said it continues to oppose such moves.
Christopher Cermak is an editor at Handelsblatt Global Edition in Berlin. Michael Maisch is deputy chief of Handelsblatt’s finance department in Frankfurt. To contact the authors: email@example.com and firstname.lastname@example.org