Santander’s Botin Says ECB’s Monetary Policy Isn’t Working
Santander’s Botin to ECB: Your Monetary Policy Isn’t Working
(Bloomberg) --
Banco Santander SA Chairman Ana Botin said the European Central Bank’s current monetary policy isn’t working, amplifying criticism of the institution as it launches an historic strategy review.
“What they are trying to do, is basically you lower rates and there is more demand for credit,” Botin said in an interview with Bloomberg TV in Madrid on Wednesday after the bank published earnings. “But that’s not working. As a matter of fact, actually, in a lot of countries, loans are coming down.”
Her comments are the latest in a years-long debate about the effectiveness of the ECB’s negative interest rates, which were recently lambasted by bankers at the World Economic Forum in Davos, Switzerland. While critics such as Botin say subzero rates have done more harm than good, most central bankers argue that they’ve bolstered loan demand, boosting the economy and ultimately helping banks’ bottom lines.
New ECB President Christine Lagarde needs to keep in mind the challenges that lenders such as Santander are facing as she undertakes its first strategic review since 2003, Botin said.
“The negatives outweigh the positives,” Botin said.
While bank lending to companies has been declining in Spain, as well as Italy and the Netherlands, aggregate lending in the euro zone has been rising. The ECB said on Wednesday that the annual growth rate in December was 3.2%, down from 3.4% the previous month.
Still, if such attacks continue to gather momentum, they could end up undermining the credibility of the ECB. That’s a risk that current and former policy makers have flagged recently, raising the stakes for the central bank’s strategy review.
ECB Executive Board member Yves Mersch said this week that the central bank’s stimulus has contributed to “very elevated” asset prices, and noted how surveys show support for the ECB lagging that of the euro. Former ECB vice president Vitor Constancio weighed in, saying that some of the ideas for changing the ECB’s inflation goal don’t stand up to scrutiny.
Former Austrian governor Ewald Nowotny said it is “dangerous for the credibility of a central bank” if it can’t reach its self-imposed goals despite using unconventional monetary stimulus.
Lagarde has said the review will look at the efficacy of policies such as negative rates and will seek input from euro-area citizens as well as bankers and academics.
The ECB has already taken steps to address the concerns that negative rates are eroding banks’ profit margins because lenders can’t easily pass the cost onto depositors. In September, former president Mario Draghi introduced “tiering.” That exempts some of the reserves that banks place at the ECB from the deposit rate, which is currently -0.5%.
Botin said the measure hasn’t provided relief.
“Tiering for us is a zero sum game – it’s not helping us,” she said.
In a sign of how negative rates have bitten in Santander’s home market of Spain, net interest income from its business there was down 11% in the fourth quarter of 2019 compared to the same period a year earlier, the lender said in earnings results published on Wednesday.
She acknowledged, however, that the ECB’s policies had helped lenders by ensuring the currency weathered Europe’s financial crisis. “I think the ECB under Mario Draghi did an amazing job,” she said. “They basically saved the euro.”
Climate Change
Botin also told Bloomberg TV that the bank needs to do more to fight climate change.
Santander isn’t financing new coal-fired power projects in Poland, for instance, and isn’t taking on new customers that own coal plants there, she said. The lender owns Santander Bank Polska SA.
But the bank can’t stop financing existing plants in a country such as Poland where coal makes up about 80% of the energy supply, Botin said.
“We need to continue financing the existent ones, because otherwise there would be no energy in Poland,” Botin said.
To contact the reporters on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net;Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net;Francine Lacqua in London at flacqua@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Penty, Paul Gordon
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