Big surplus at Europe’s banks

Frankfurt. It is a constant lament of German financial institutions: the negative interest rates of the European Central Bank (ECB) on deposits of currently minus 0.5 percent. According to the Federal Association of German Banks (BdB), that cost the German credit institutions around 2.6 billion euros in 2020. For all banks in the euro zone, he puts the expense at 17 billion euros. With this money houses in Germany justify the passing on of negative interest to more and more customers.

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According to the financial portal biallo.de, more than 500 institutes are now doing this in this country. Now, a study by the IESEG School of Management in Lille, France, claims that these figures are exaggerated because the ECB grants the institutions exemptions and at the same time offers long-term financing transactions – so-called TLTROs or long-term tenders – at interest rates of up to minus one percent. The banks therefore receive an interest premium. Result: In eight euro countries the institutes are even making profits.

German financial institutions have to accept the second highest losses. At 566 million euros per year, however, they are well below the information provided by the BdB. According to the study, Italian banks bring the interest and interest premiums of the ECB even a net profit of 3.2 billion euros, institutions in Spain of almost 1.9 billion euros annually. According to the IESEG study, banks in Luxembourg are hardest hit with an annual loss of almost 800 million euros.

Overall, however, the ECB’s negative interest rates on deposits and the interest premium for TLTRO loans benefit the financial institutions in the euro zone – with a total profit of almost 5.2 billion euros. Eric Dor from IESEG calculated this on the basis of their balance sheets from July 2021. The study puts the burdens from the negative deposit interest, taking into account the exemptions, at almost 17 billion euros per year, but the income from the TLTRO loans at almost 22.2 billion euros.

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Dor points out that the banks are currently drawing loans from the ECB exclusively through the subsidized TLTRO lines at minus interest rates of up to one percent. “It is obvious that negative interest rates on TLTRO loans represent a subsidy for the European banks.” Dor admits, however, that the consideration is only an excerpt. In general, the institutes would be burdened by the low interest rates across all business areas.

Commerzbank and Deutsche Bank, among others, have conceded positive effects from the interest subsidies from the TLTRO credit lines. Commerzbank had reported earnings of 168 million euros for the first half of the year. Deutsche Bank benefited even more: In the first half of the year, the TLTRO loans brought the institute a profit of 282 million euros.

The BdB does not consider the simple offsetting of the negative interest with the interest premiums to be objectively justified. This obscures important aspects. The concessions for TLTRO loans are tied to specifications, such as a certain volume of loans granted. In this respect, it is not at all clear whether the banks could even use the negative interest rate of up to one percent. In addition, banks have had to pay negative interest on deposits since 2014. By 2020 that was around 37 billion euros in the euro zone, of which a good eleven billion went to German banks. In return, the Bundesbank put the relief from TLTRO loans for the period 2014 to 2020 at only 2.8 billion euros, according to the BdB. Incidentally, the negative interest, i.e. the interest premium for TLTRO loans, would only be paid at the end of the respective term, at the earliest in mid-2022.

In contrast, the ECB calculates the negative interest on deposits every six weeks. “The special discounts for long-term tenders are not a suitable compensation for the burdens on the banks due to the negative deposit interest of the ECB,” says BdB expert Volker Hofmann. And calls for significantly higher allowances. IESEG representative Dor admits a special burden on the German banks.

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He is convinced, however, that they in particular will benefit from the increasing demand for credit due to the improved economic outlook and thus from the interest premiums of the long-term tenders. In general, he cannot understand why these interest premiums are not intended to compensate for negative interest rates and emphasizes: “The opposite is the case for the euro zone”. According to his analysis, this means that German banks are not burdened with a good 2.5 billion euros a year, but “only” with just under 570 million euros.

However, Dor regards it as normal that the banking lobby would like more concessions from the ECB through higher tax exemptions.

Rolf Obertreis correspondent For more than 20 years I have been working for Mannheimer Morgen and other important regional newspapers such as Tagesspiegel / Berlin, Badische Zeitung / Freiburg, Südwest Presse / Ulm and Münchener Merkur as a business correspondent in Frankfurt. Banks, the European Central Bank, the Bundesbank, the stock exchange and Frankfurt-based companies such as Lufthansa and associations such as the Association of German Mechanical and Plant Engineering VDMA are among my focal points. In addition, aviation. I also deal with development cooperation issues through KfW Bankengruppe and the Gesellschaft für Internationale Zusammenarbeit (GIZ).

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