Finance Minister Vincent Van Peteghem (cd&v) is launching a new government bond as an alternative to the savings account. But KBC CEO Johan Thijs speaks of unfair competition. ‘It is not illogical that banks react nervously,’ says economist Selien De Schryder (UGent).
Does Thijs have a point?
“A lower tax rate applies to government bonds than to investment products from banks. And those who subscribe do not have to pay any costs for a securities account – such an account is nevertheless mandatory for those who invest with a bank. So I do follow Thijs’ reasoning. Banks must adhere to certain rules, but they do not apply to the alternative that the government is launching.”
Isn’t the government bond just meant to put the heat on the banks, so that they raise the interest on the savings account?
“That’s right yes. The competition between the banks appears to be quite low. The interest rate policy of the European Central Bank has ensured that there was still room for the savings accounts to yield more than they do today. It is always a matter of waiting for the first major bank to raise interest rates, only then will the rest follow.
“That government bond is actually a way to get banks moving without raising the legal minimum interest rate. The reasoning is: if they want to keep that savings with them, they should raise the interest. It is not illogical that banks react nervously to this, because the debate about this is not always conducted completely honestly.”
What Do You Mean By That?
“In the media and in the discourse of a number of mainly left-wing parties, it sometimes seems that banks are only out for short-term profit, while that is of course not the case. The savings that you and I have in a savings account actually mean very cheap financing for the banks. It is very important for them not to lose it. Banks are certainly considering whether it would not be better to raise interest rates a bit and not lose their savers.
“Incidentally, banks have had to give savers a return in recent years that was higher than what they themselves received from the ECB. That is often forgotten.”
How safe is that government certificate compared to a traditional savings account? It’s still an investment.
“The risk is very low. The government guarantees the money that is invested in the government bond. And that government remains a very credible partner. With the savings account you are of course in the private sector, but the savings are also covered by a government guarantee. So there is virtually no difference in terms of safety.
“They are both very solid ways to have your money yield something in the short term – you sign up for one year with the government bond. That is the difference with other investments. Anyone who takes the step to term accounts or the financial markets will have to take more risk to get the same return and will often lose the money for a longer period. That government bond is simply a very attractive way to invest your savings in one way or another.”
Will this set competition among banks in motion and lead to higher interest rates on savings?
“I do think it will increase competition, yes. But it remains to be seen how successful that government bond will be. There are already many alternatives to the savings account, but Belgians continue to use that savings account en masse. Such an account is seen as a way to access your money immediately when it is really necessary. With the government bond, your money is fixed, even if it is only for a year.”
Between April and June, KBC posted a net profit of almost one billion euros. Isn’t it a bit exaggerated to shout shame at a little extra competition?
“The banking sector is indeed doing very well at the moment. These are favorable times, but it is wrong to view those earnings figures only in the short term. It is important that banks can arm themselves against future risks. A government also only benefits from a strong and competitive banking sector.
“If the state bond can help with that, I think that’s a good thing. I also think that there is still room to raise the interest on the savings account. Due to the ECB’s adjustments, banks have raised interest rates on home loans considerably in a short period of time – which means more profit for the banks – but the proceeds from savings books – a cost – have followed much more slowly.”
