margin squeeze coming for Dutch banks | Reuters

By Bart Meijer

AMSTERDAM May 18 The Netherlands’ central bank
said on Thursday it expects margins at the country’s major
banks, which have so far held steady despite Europe’s ultra-low
interest rate regime, to finally come under pressure.

The number two official at De Nederlandsche Bank (DNB),
Director Jan Sijbrand, said he expects banks to suffer on two

First, fixed rate mortgages are being refinanced at lower
rates, removing a profitable source of lending. And second, room
to lower rates paid on retail deposits has run out.

The country’s big banks now pay around 0.2 percent on
average for retail deposits – not an attractive proposal from
the banks’ perspective when they could borrow at below zero on
capital markets and must pay the European Central Bank 0.4
percent if they hold excess cash.

But banks see lowering the rates paid to retail savers below
zero as a line they are unwilling to cross.

“There appears to be a zero lower bound to the savings
rate,” Sijbrand said at a press briefing in Amsterdam. “All over
Europe we see great hesitance towards negative rates.”

He said that banks were aware they would face
incomprehension and probably outrage if they actually were to
enact a negative deposit rate.

“The already fragile trust in banks will be harmed when
people get back less than what they put into their accounts,” he

Banks may be willing to sacrifice some margin in coming
years, in the expectation that eventually rates will return to
historical norms, restoring a more normal relationship with
retail customers.

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“Savings deposits have been an important source of funding
for decades, so you want to be careful with that,” he said.
(Reporting by Toby Sterling; Editing by Toby Chopra)