German banks pass ‘rates pain’ to retail clients

Bloomberg

A growing number of German banks are passing on negative interest rates to their retail customers as the costs become too high to bear on their own.
Berliner Volksbank, the country’s second-largest cooperative lender, started to apply a minus 0.5% rate on deposits exceeding 100,000 euros ($110,000) in its first charge for retail clients. The move may encourage other lenders to follow suit, with both Deutsche Bank AG and Commerzbank AG signalling that they’re warming to the idea.
“Things are changing in the industry and we expect further negative interest rates, especially since one of the major cooperative lenders has now taken that step,” said Oliver Maier, co-head of market researcher Verivox Finanzvergleich.
Germany’s banks have long resisted passing on the burden of negative rates to retail clients, concerned that they will face reputational damage and mass withdrawals. But after five years of negative rates from the European Central Bank, the country’s banks — already struggling with sub-par profitability — are running out of ways to offset the hit to earnings.
At least 34 German lenders have already opted to drag some retail clients into the fray of negative rates, according to data provider Biallo.de. Most of them, however, are smaller banks and the threshold is often well above the 100,000 euro mark set by Berliner Volksbank. Many have passed on the costs to corporate and wealth clients for some time.
The rate policy is costing German lenders 2.4 billion euros a year, according to the country’s banking lobby.
Last month, the ECB reduced the deposit rate to minus 0.5% from minus 0.4%.
Lenders will get exemptions from the negative rate for some of their deposits.
Berliner Volksbank tied its new policy to the ECB’s latest move.