Analysis: Europeans fed up with shrinking savings are draining billions of dollars from banks

Finance


LONDON/DUBLIN (Reuters) – European savers want more money out of banks and better deals. Lenders are resisting payments to keep deposits.

The trend emerged when some of the region’s largest lenders outlined their profitable results for the year, offering a glimpse of a phenomenon dubbed the “bank walk,” a slow but notable outflow of customer cash. rice field.

Lenders wasted little time on additional claims on loans when interest rates rose sharply from nearly 15 years of stagnation near zero last year, but most lenders are paying their millions of customers. We have taken steps to raise interest rates on deposits.

While this has boosted profits for many major banks beyond expectations by many analysts, it has left depositors unhappy and raised new questions about the long-term stability of the sector.

“Traditional banks will have to decide whether to maximize profits by keeping interest rates on deposits as low as possible, or to prioritize liquidity and stability by raising interest rates and retaining customer funds. There is,” said Nicola Marinelli, assistant professor of finance at Regent’s University London.

Money market funds have become popular among savers looking for greater returns on their cash during periods of high inflation.

While returns for these funds have marginally outperformed bank deposit rates in recent years, the Crane Sterling Money Market Fund Index reported a 7-day annualized yield of 4.12% as of April 25. The conversion in euros was 2.81%.

Net inflows into European money market funds exceeded €34 billion ($37.6 billion) in March, making them the best-selling asset type for the month, according to Refinitiv Ripper data.

This fund class was already worth more than €1.4 trillion at the end of last year, still small compared to the €9.45 trillion held in checking accounts of eurozone banks.

Fidelity International also reported an 8% year-on-year increase in inflows into its investment platform’s money market funds between January 1 and April 26.

sufficient liquidity

Senior bankers deny the threat posed by declining deposits in a region where consumer groups claim spouses are more likely to abandon banks than banks.

Asked about the 1.6% decline in deposits in the first quarter, Unicredit CEO Andrea Orsel said the bank has a very strong liquidity position with a coverage of 163%, so it will not be able to manage its deposit base. I said above that we can afford to pursue profitability.

A sharp decline in deposits could also help banks balance liabilities owed primarily to depositors against future declines in assets, as lending demand shows signs of slowing. I have.

But lenders also need to make sure they have enough liquidity and capital on hand to cover lending bets that can suddenly turn bad.

Most banks boast liquidity and capital levels above regulatory requirements, but the collapse of US lenders Silicon Valley Bank and Switzerland’s Credit Suisse has left us wondering what would happen if customers abandoned their lenders at a faster pace. This is a warning about what might happen.

drawer

In the UK, NatWest (NWG.L) clients withdrew £11.1bn in the first three months of the year, while HSBC deposits, excluding one-time inflows, fell $10bn to $1.6tn I was. £2.2 billion each.

Data from the Deutsche Bundesbank showed household deposits were down nearly 8% year-on-year. Deutsche Bank, Germany’s largest bank, fell 4.7% in the first quarter, partly due to concerns about contagion from the US banking crisis. Switzerland.

However, Chief Financial Officer James von Moltke said there was increased competition from “banks leaving some price-sensitive deposits” and that some customers were forced to invest in money market funds and other money market funds. He also acknowledged a shift to higher-yield alternatives.

France’s BNP Paribas also reported a slight decline in first-quarter deposits, while Spain’s Santander was the only European heavyweight to report a 6% increase over the same period.

Some lawmakers have criticized banks for discrepancies between what they charge borrowers and the interest rates offered to savers.

“It’s about profitability. It’s about keeping your own profit. Isn’t that the answer?” UK MP Angela Eagle asked bankers at a UK parliamentary hearing in February. rice field.

HSBC Chief Executive Noel Quinn said the bank’s deposit losses were “not a big deal,” while Standard Chartered’s chief financial officer Andy Halford told Reuters people said it would ultimately prioritize safety over interest payments.

“You’ll see people keep their money in safe places,” he said.

($1 = 0.9048 EUR)

Additional reporting by Valentina Za in Milan, Iain Withers, Lawrence White and David Milliken in London, and Balazs Koranyi and Francesco Canepa in Frankfurt.Edited by Kirsten Donovan

Our standards: Thomson Reuters Trust Principles.

Tom Sims

thomson Reuters

Covers previous experience with major banks, insurance companies, regulation, finance in Germany focusing on financial crime, The Wall Street Journal and The New York Times in Europe and Asia.



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