26 May 2023
The debate about the minimum interest rate on savings accounts has dominated the public and political debate for several days. Understandable, after all, everyone would like to get a little more interest on their savings. This would be a bonus, especially in a period of high inflation when life has become more expensive.
So while the idea of legally imposing a minimum interest rate is completely understandable emotionally, it remains important that we do not let populism prevail. The banking profession is so much more complex than merely tracking the ECB deposit rate one-on-one. And unfortunately that is very difficult to explain. It is nevertheless essential to guarantee the health and stability of our Belgian banks, in the interest of society as a whole. There are many major challenges ahead, such as the transition to a more sustainable society, which will cost a lot of money, and in which the banking sector will have a key role to play.
But back to the complexity of healthy banking. Banks have an important transformation function. On the one hand, they hold short-term deposits and, on the other hand, they provide long-term loans. The deposit rate of the ECB has risen a lot in a short period of time, a policy that the ECB is pursuing to contain inflation. Since 9 months we have therefore known a new reality, a positive ECB deposit rate. New, because this interest has been negative for 10 years. This means that households and businesses have been able to obtain or refinance their fixed-rate loans at particularly low rates for years. The entire loan portfolio of banks therefore consists of loans with very low interest rates.
During the same period of negative interest rates, there was also a legal minimum interest rate of 0.11% on regulated savings accounts in Belgium. Despite banks having to pay a negative interest rate of 0.5% to the central bank for years to park savings there, the Belgian consumer has never known a zero or negative interest rate on his regulated savings account, and has always been able to enjoy an admittedly low, but still positive interest. In addition, we should not close our eyes to the bank levies that banks pay, which were recently increased again by the government. This primarily benefits the government, not the saver.
All elements that should not be forgotten in this often emotional, but very complex debate. Elements that mean that the banks must each be able to make their own risk analysis based on their specific model and estimate whether they have the possibility to adjust their savings interest rates, without affecting their stability, their depositors' money and the necessary investments for the future endanger. This is also why there may be some delay between the adjustment of the ECB deposit rate and the savings rate that banks offer. It's not a one on one relationship, it's not a black and white story.
In a market such as Belgium, competition is intense and will therefore play a role, also with regard to savings interest rates. But let us understand that a bank must proceed with caution, correctly assess risks and, on that basis, be able to make the right decisions in the public interest.
Karel Baert, CEO Febelfin