- Deutsche Bank says deposit costs have unintended consequences
- Negative rates cut Commerzbank loan income by $180 million
Commerzbank AG, the biggest lender to German companies, joined Deutsche Bank AG in signaling that the country’s banking clients will face higher fees to help shoulder the cost of record-low interest rates.
“The German market will see these repricing initiatives,” Chief Financial Officer Stephan Engels told analysts on a conference call on Tuesday after Commerzbank released second-quarter earnings. German banks’ deposit funding “is obviously a very difficult business model” when interest rates are negative, he said.
The European Central Bank’s deposit charges, designed to spur economic growth partly through cheaper lending, are squeezing banks’ profit margins across the region as the cost of holding cash for their clients rises. At Deutsche Bank, Chief Executive Officer John Cryan said last week that Germany’s largest bank is “relatively well positioned” to pass on higher costs given its range of businesses.
“I have trouble seeing how banks want to expand margins in this environment as everyone is looking to lend,” said Andreas Plaesier, an analyst at M.M. Warburg in Hamburg, who has hold recommendations on Commerzbank and Deutsche Bank. “Taking more risk might look good at first, but that can come back to hurt a bank in times of economic stress.”
Commerzbank is one of the few European banks to quantify the cost tied to the impact of negative interest rates. They eroded 161 million euros ($180 million) of lending revenue at its two main units in the first half, the company said on Tuesday.
The unit catering to corporate clients has sought to offset negative deposit costs by cutting holdings of cash for clients by 22 billion euros this year, introducing a deposit facility fee, raising prices and implementing interest rate floors on variable loans.
Charging consumers for deposits is “not an issue for us at the moment,” Engels said. Instead, the bank is lending more, introducing fees for paper-based transactions and charging higher fees for credit cards and securities accounts.
At Deutsche Bank, CFO Marcus Schenck said the “bizarre” consequence of negative rates is that bank clients will have to pay more for loans.
“It’s not what I think the central banks want to see happening,” he told analysts on a call with Cryan last week. “But that’s the logical consequence in a world where you cannot actually pass on negative rates on the deposit side.”