Thursday, October 29th, 2020
Everything is going as planned by the European Central Bank (ECB). The German banks are doing better than expected. Everything else is whining on a high level. The monthly report of the Deutsche Bundesbank on “Developments in the German banking system in the phase of negative interest rates” can be summarized in this way or in a similar way. If it weren’t for the corona pandemic, nobody would have reason to complain – apart from savers.
Key facts at a glance
- The ECB’s penalty interest rates have so far had no negative impact on banks’ earnings
- Although the interest margin has decreased, the lending business has been expanded
- Due to the corona pandemic, the banks’ earnings are now threatened to shrink
Penalty interest for banks since 2014
Operating note: Individual data series can be hidden and shown again by clicking on the relevant heading.
Sources:
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Since 2014, banks have had to pay penalty interest when they park money with the ECB. Initially this was 0.1 percent. They were then gradually increased, most recently to 0.5 percent in 2019. The ECB is primarily pursuing one goal: the banks should grant more loans.
Of course, the banks’ complaints were not long in coming. They complained about falling yields. Their situation seemed to be getting worse.
Low interest margin, large credit business
If the Bundesbank has its way, however, that is complaining at a high level. Because the ECB’s plan has worked. The banks have expanded their lending business and earned well from it. It is true that the deposit rates did not fall to the same extent as the lending rates, which reduced the interest margin. So far, however, this has hardly reduced the banks’ income.
Loan defaults remained low. This enabled the banks to increase their equity. The earnings situation was good – also because of the economic upturn due to the expansionary monetary policy of the ECB, according to the Bundesbank.
Corona crisis bad for earnings
Some savers are likely to blush with these statements. After all, numerous institutions are now passing the negative interest on to their customers. What if the lending business is up and running?
However, the good earnings position of German banks could now come to an end. The corona pandemic stopped the economic upturn. According to the Federal Ministry of Finance, the economy could shrink by 5.5 percent this year. That should also cause banks’ earnings to shrink.
Further link
Bundesbank – Monthly Report October 2020
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