German Lenders Pass Pain of Negative Rates to Retail Clients

(Bloomberg) -- A growing number of German banks are passing on negative interest rates to their retail customers as the costs become too high to bear on their own.

Berliner Volksbank, the country’s second-largest cooperative lender, started to apply a minus 0.5% rate on deposits exceeding 100,000 euros ($110,000) in its first charge for retail clients. The move may encourage other lenders to follow suit, with both Deutsche Bank AG and Commerzbank AG signaling that they’re warming to the idea.

“Things are changing in the industry and we expect further negative interest rates, especially since one of the major cooperative lenders has now taken that step,” said Oliver Maier, co-head of market researcher Verivox Finanzvergleich.

Germany’s banks have long resisted passing on the burden of negative rates to retail clients, concerned that they will face reputational damage and mass withdrawals. But after five years of negative rates from the European Central Bank, the country’s banks -- already struggling with sub-par profitability -- are running out of ways to offset the hit to earnings.

Read More: UniCredit CEO Says Negative Rates Must Be Passed to Clients

At least 34 German lenders have already opted to drag some retail clients into the fray of negative rates, according to data provider Biallo.de. Most of them, however, are smaller banks and the threshold is often well above the 100,000 euro mark set by Berliner Volksbank. Many have passed on the costs to corporate and wealth clients for some time.

Costing Billions

The rate policy is costing German lenders 2.4 billion euros a year, according to the country’s banking lobby. Last month, the ECB reduced the deposit rate to minus 0.5% from minus 0.4%. Lenders will get exemptions from the negative rate for some of their deposits.

Berliner Volksbank tied its new policy to the ECB’s latest move. Deutsche Skatbank, which imposed the same minus 0.5% rate for accounts that exceed 100,000 euros, said it is “no longer economically justifiable to continue to bear the ECB’s negative interest rate in full.”

According to the German association of cooperative lenders, other banks within the group might follow. “It can not be ruled out that additional customers or products will be affected,” said spokeswoman Cornelia Schulz.

Some of Germany’s largest banks, which have so far mostly resisted involving their customers, have also signaled the need to act:

• Deutsche Bank needs to be “more robust” in sharing the consequences of negative rates, Chief Financial Officer James von Moltke said last month. Companies and wealthy clients could see a tiered system with favorable rates up to a certain cap in deposits, while retail clients may end up paying through fees for services, he added.
• Commerzbank isn’t currently considering passing on the costs to retail clients, CFO Stephan Engels said in September. The lender will have “focused discussions” about doing so with clients who have funds that surpass “certain thresholds,” he said in a Bloomberg TV interview.

Danish Banks Giving in to Pressure

Denmark is another country where the idea is gaining traction. Spar Nord Bank A/S will apply a minus 0.75% rate on deposits exceeding 750,000 kroner ($110,000), it said on Thursday. The move comes after Jyske Bank A/S, Denmark’s second-largest listed lender, said it is doing the same.

German citizens save far more of their disposable income than most other Europeans and so the overall impact of such moves could be bigger. The country’s savings rate was around 10% in 2017, almost twice the euro-area average, according to Deutsche Bank. On average, Germans held more than 40% of their financial assets in the form of bank deposits in 2018.

One in two Germans would probably change lenders if their own bank resorts to negative rates, according to a study by management consultant Investors Marketing. “Lenders must be aware that they will not easily win back customers they have lost due to these measures,” said Chief Executive Officer Oliver Mihm.

To contact the reporter on this story: Stephan Kahl in Frankfurt at skahl@bloomberg.net

To contact the editors responsible for this story: Daniel Schaefer at dschaefer36@bloomberg.net, Ross Larsen

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