The low rate environment has been established over time. The list of challenges for banks is growing. There is no shortage of terms used by financial players to describe the new zero interest rate environment in which European banks must now operate. The interest rate on money – the raw material of credit institutions – had already been low for several years, thanks to the monetary policy of the European Central Bank (ECB). In the darkest hours of the financial crisis, Frankfurt’s generosity has enabled banking groups to maintain a good level of solvency and to revive the credit machine in the worst hit economies of the euro zone.
But the environment of very low rates is now taking hold. While the absence of inflation threatens to plunge into apathy in the Old Continent, la BCE is not about to put away its monetary bazooka . The slide is such that the real rate of monetary policy has fallen below zero… to the great dismay of the banking sector. At the beginning of March, the ECB lowered its deposit rate from -0.3% to -0.4%. This means that, instead of being remunerated, excess liquidity deposited by banks with the central bank is now taxed. This transgression is already giving rise to anomalies here and there, since some institutions in Europe are now accepting… to pay to lend, by granting negative rates to borrowers. The world upside down! In France, banks, bursting with deposits, are feeling the pressure of negative rates. They do not pass this “tax” on to the current accounts of individuals, but some already apply a negative rate to deposits from large companies.
In this new interest rate universe, French banks are still able to identify increasing profitsspan style=”font-family:’Liberation serif’, serif;”> , like BNP Paribas and Société Générale in the first quarter. How long will it last? For the time being, they are keeping their heads above water thanks to savings plans and a drastic reduction in provisions for unpaid debts, but their income decreases. Their challenge is to adapt to this new situation, while they face two other major challenges.
Low and negative rates do not only challenge banks. For their customers, both companies and individuals, habits are changing. Who wins and who loses in the age of zero rates?
>Disoriented savers“>: These are the big losers in the current low rate environment and ECB policy. Today, individuals are struggling to find investments with high returns. Households have “invested” 36 billion euros in their current accounts – which do not earn interest. At the same time, the French have turned away from the Livret A passbook savings account, considering its remuneration too low, at 0.75%. However, savers are not so badly off in terms of the real return on savings products, i.e. the return that emerges after taking inflation into account. Insurers have also pointed out that the average rate paid by euro funds in 2015 (2.3%) was actually more attractive than the average remuneration in 2014 (2.5%), since inflation was zero last year.
Filing by penalized companies : With its negative deposit rate, the ECB has decided to tax banks’ excess liquidity. As a result, the question arises for them to pass on (or not) this extra cost to their customers. For small businesses, this is not an option at this time, as deposit volumes remain limited. At the other end of the spectrum, banks have applied negative rates to their very large depositors
“institutional” (investors, insurers…) these last months. the bank waives the tax on the client’s liquidity, but in exchange, if the client had taken out a credit at variable rate, the loan will not pass into negative territory. Another possible solution is to tax deposits only above a certain threshold considered excessive. It must be said that some corporate treasurers had taken advantage of the situation by borrowing at negative rates on the markets before reinvesting at zero rates with their bank.
Des emprunteurs galvanisés : La BCE serait-elle entrain de gagner son pari ? Dans l’ensemble de la zone euro, le crédit aux entreprises a augmenté de 1,1 % en mars, prolongeant une reprise modeste et irrégulière entamée en 2014. Le frémissement se fait surtout sentir du côté du crédit aux ménages, à +1,6 % sur un an, son rythme de croissance le plus élevé depuis novembre 2011. Ces tendances s’observent aussi en France. Jusqu’à présent, ménages et entreprises ont surtout profité de la spectaculaire baisse des taux pour renégocier leurs crédits à des conditions plus favorables. Mais cette baisse des taux n’aura de sens que si elle stimule les « vrais » projets d’investissement. Sur le marché immobilier, le mouvement profite déjà au retour des acquéreurs les plus jeunes, à qui les banques acceptent à nouveau de prêter sur vingt-cinq ans et plus. Quant aux entreprises, elles ont longtemps reporté leurs projets d’investissement.