Deutsche Bank’s chief executive has warned about the negative side effects of a likely cut in interest rates by the European Central Bank next week, arguing it would do little to stimulate the economy but would deepen divisions in society.
Christian Sewing told a banking conference in Frankfurt that an expected lowering of eurozone interest rates further into negative territory “may make refinancing cheaper for governments but it will have serious side-effects”.
The head of Germany’s biggest bank said: “Few economists, at least, believe that cheaper money on this level will do anything.
“This fits in with what we get from listening to our customers,” he added. “Medium-sized companies tell me clearly: they will not invest more just because the loan will be 10 basis points cheaper.”
He also warned of a “split in society” because negative interest rates favoured those who own assets and have access to cheap loans by pushing up the price of houses and market securities, while penalising Germany’s many savers.
Citing a Deutsche estimate that negative interest rates are already costing savers €160bn a year, Mr Sewing said: “The worrying thing is that central banks have little money left to effectively curb a real economic crisis.”
The comments indicate how next week’s expected monetary stimulus package from the ECB, which economists forecast will include a further interest rate cut and resumption of its bond-buying programme, is likely to stir up political controversy in Germany.
His criticism of ultra-loose monetary policy was backed up by
Martin Zielke, head of his main German rival Commerzbank, who was speaking at the same event.
“Banks’ interest margins are under pressure in this environment and that’s not going to change,” Mr Zielke said. “I don’t think it is a particularly sustainable or responsible policy.”
Some banks have passed the cost of negative rates on to companies and other financial institutions that hold deposits with them. But most have not done so for households, fearing that consumers could move their money to a cheaper rival or withdraw it as cash.
This has squeezed banks’ profit margins, particularly those that rely on retail deposits for a large part of their funding, adding to the woes of a eurozone banking sector that still has not fully recovered from the 2008 financial crisis.
The ECB is expected to mitigate the cost for banks of lowering its deposit rate in September by introducing a tiering system that excludes a portion of excess deposits from negative rates. This would be similar to rules already in place in other countries with negative deposit rates, including Japan, Denmark and Switzerland.
German banks estimate that negative interest rates cost them €2.4bn a year — a third of the total cost for all eurozone banks. Deutsche and Commerzbank are both seeking to cut expenses to boost their flagging profitability, having examined a potential merger earlier this year. Deutsche this year announced 18,000-20,000 job cuts and a retreat from parts of its struggling investment banking operation.
However, with Germany on the brink of a potential recession — hit by the disruption of the Us-china trade war, the UK’S plan to exit the EU and the turmoil in the carmaking industry — the country’s banks are braced for tough times ahead.
