Belgian banks push back against Government calls to raise savings rates
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- 29 May 2023
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Belgian banks have firmly rejected a request from the Federal Government to raise interest rates on their customers' savings accounts, stating that such an increase "has the potential to significantly impact the stability of the banking sector," according to reports in Belgian media.
Febelfin, the federation representing the Belgian financial sector, emphasized that each bank operates with a unique business model and must conduct its own risk assessment to determine the savings rate it can offer. In a statement reported by the Belga News Agency on Sunday, Febelfin stated, "An ill-considered intervention by the public authorities... has the potential to significantly impact the stability of the banking sector."
In recent months, banks have faced mounting pressure to raise their savings rates as the European Central Bank's (ECB) repeated interest rate hikes have largely failed to be passed on to savers.
Last week, Finance Minister Vincent Van Peteghem (CD&V) sent a letter to Febelfin, urging Belgium's banking sector to increase the rates on savings accounts. However, this move was criticized as ineffective and feeble by the Flemish social democratic political party Vooruit.
Vooruit MP Melissa Depraetere stated, "Minister Van Peteghem can send as many letters as he wants, but we all know that banks won't take action unless they are legally obligated to do so." Depraetere insisted that the Finance Minister must intervene with legal requirements for banks to adjust their interest rates, deeming it "unacceptable for banks to generate excessive profits from their customers' funds while simultaneously reducing their customer services."
Supporting Depraetere's strong stance on Belgium's banking sector, an analysis conducted by the IESEG School of Management and published last month revealed that in February 2023, the average interest rate on Belgian customers' savings deposits was a mere 0.35%. This is in stark contrast to the rate earned by Belgian banks from depositing their surplus cash overnight at Belgium's central bank, which stood at 2.5% (now 3.25%).
The study highlighted that the significant difference between these two rates largely explains the impressive performance of Belgian banks throughout the past year. BNP Paribas Fortis, Belgium's largest bank, recorded a profit of €3.16 billion in 2022, representing an increase of nearly one-fifth (18.8%) compared to 2021.
"While the ECB has already raised its key rates by 3.5% [now 3.75%] over the course of a few months, the increase in the rates offered by Belgian banks on customer savings deposits has remained very limited... In Belgium, there is room for banks to raise the rates on savings deposits," the study pointed out.
Responding to the study, Febelfin contested the assertion that banks had the capacity to increase rates. The organization argued that the relatively low savings rates offered by banks primarily stem from the fact that for many years, Belgian savers were shielded from the ECB's negative deposit rates.
"Between June 2014 and July 2022, banks had to contend with a negative deposit rate imposed by the ECB, meaning that they had to pay to deposit their funds, while in Belgium, the minimum interest rate of 0.11% still applied," Febelfin clarified. "Unlike many other European savers, Belgian savers have never experienced zero or negative interest rates on their regulated savings accounts."
