Higher fees announced: customers "flood" savings banks with money

Tuesday, February 16, 2021

Higher fees announced
Customers "flood" savings banks with money

In the past, banks would have been happy to have more deposits. However, in times of negative interest rates, customer funds are a burden. At the same time, the corona crisis is helping customers save more than ever. Savings banks have to adapt their business model.

Savings banks can hardly save themselves from customer money during the Corona period, but do not benefit from this onslaught. "In the crisis year 2020, customers entrusted us with their money more than ever," said President Michael Ermrich from the umbrella association of East German savings banks (OSV). "However, our savings banks lack opportunities to invest this money or to invest it with interest." The reason is the long-term negative interest rate policy of the European Central Bank (ECB), which poses major problems for the institutions and ultimately endangers the business model of the savings banks. Due to the falling net interest income, the largest source of income for the savings banks, the OSV does not rule out that customers will have to pay more for savings bank services in the future.

The savings banks in other parts of Germany are also suffering from the same phenomenon. According to the Savings Bank Association of Westphalia-Lippe, a "pronounced precautionary saving" contributed to the fact that customer deposits reached a high of 113 billion euros (plus nine percent).

Ermrich von OSV complained that the negative deposit interest rates of the ECB lead to "that – when customers transfer funds to their current accounts – the savings banks pay negative interest rates at the ECB". The already traditionally high deposit portfolio climbed by almost ten percent to a record of 120.3 billion euros. "The savings banks were literally flooded with savings," said OSV managing director Wolfgang Zender. What means cheap liquidity for the institutes in normal times has led to extra burdens for six years, according to OSV estimates.

"Custody fees" are to be expected

The operating result before valuation fell in 2020 by 3.5 percent to 1.15 billion euros, the third year in a row. Since 2018, the savings banks have lost a total of around 166 million euros in profit, said Ermrich. This corresponds to the funds that the Eastern Savings Banks have made available over the past three and a half years to support culture, sport, social projects and education.

Profits are also likely to decline in 2021, Zender said. "The net interest income crumbles and crumbles." The approximately 45 savings banks have increased their commission income by around 30 percent since 2014. "But that is nowhere near enough" to compensate for the decline in interest business, warned Zender.

The Westphalian savings banks also want to make themselves more independent of the interest business, such as through a continuous increase in commission business, said association manager Jürgen Wannhoff. He also anticipates price increases for current accounts in the next few months. And in the case of large new investment amounts, the introduction of negative interest rates, so-called custody fees, can also be expected at the savings banks. The operating profit of the Sparkassenverband Westfalen-Lippe before valuation fell by 1.1 percent in 2020 to 1.17 billion euros.