Negative interest continues to hit banks – and customers
Swiss banks paid 1.3 billion francs ($ 1.4 billion) in negative interest rates last year, compared to 8.5 billion euros from rivals in the euro area. It is increasingly clear that banks are passing more of these costs on to their customers.
This content was published on April 22, 2021 – 15:50
Commercial banks have in recent years been forced to pay for the privilege of parking excess cash with central banks. Negative interest has been imposed across Europe to prevent investors from flooding stable national currencies, such as the Swiss franc, and making them appreciate too much. A strongly appreciated national currency is detrimental to the activities of exporters and national tourism industries.
Last year, the Swiss National Bank (SNB) relaxed its terms, allowing banks to deposit larger sums before being charged negative interest. This reduced the payment from 1.8 billion francs in 2019 to 1.3 billion francs last year, according to to a reportExternal link by Deposit Solutions. Between 2016 and 2020, Swiss banks paid a total of 8.3 billion francs in negative interest, according to the German fintech.
In the euro area, that figure stands at 33.7 billion euros (37 billion francs) – a burden which was borne mainly by German and French banks. If we compare the size of national economies and financial systems, Swiss banks are among the highest paying, according to Deposit Solutions.
Eurozone banks can offset some of these costs by borrowing funds at negative interest rates from central banks if they transfer those funds to businesses and households to mitigate the impact of the coronavirus on economies.
Swiss banks are increasingly passing the fees on to their customers, especially businesses and individuals who have excess funds in their accounts.
For starters, UBS and Credit Suisse both allowed clients to hold up to CHF 2 million before imposing negative interest rates. But in January, UBS announced that it would lower this threshold to CHF 250,000 for some clients.
Most other banks have also imposed negative interest rate charges, some of which have widened the net over time to attract more customers. In principle, customers are more likely to escape fees if they make more use of banking services, such as taking out a mortgage or other loan.
A survey by the audit company EY SwitzerlandExternal link found in January that only 11% of banks did not intend to pass negative interest rates on to customers. The year before that number was 21% and five years ago it was 70%.