Belgian banks have vigorously rejected a request by the Federal Government to raise interest rates on their customers' savings accounts, arguing that such an increase "could profoundly affect the stability of the banking sector", Belgian media report.
"Each bank has a different business model and must carry out its own risk analysis and estimate the savings rate it can offer," Febelfin, the Belgian financial sector federation, said in a statement reported by Belga News Agency on Sunday. "An ill-considered intervention by the public authorities... could profoundly affect the stability of the banking sector."
Banks have come under increasing pressure to increase their savings rates over the past few months, as repeated interest rate hikes by the European Central Bank (ECB) have failed in large part to be passed onto savers.
Last week, Finance Minister Vincent Van Peteghem (CD&V) sent a letter to Febelfin in which he urged Belgium's banking sector to raise the savings rates they offer. The move was subsequently criticised as ineffective and feeble by Flemish social democratic political party Vooruit.
"Minister Van Peteghem can write as many letters as he wants but we all know that banks won't take action unless they are compelled," said Vooruit MP Melissa Depraetere. She insisted that the Finance Minister must intervene with legal obligations for banks to adjust their interest rates. She called it "unacceptable for banks to make extortionate profits on their customers' money, and on top of that to further reduce their customer services."
Cashing in on customer savings
Depraetere's tough stance on Belgium's banking sector was supported by an analysis published last month by the IESEG School of Management. The study found that in February 2023 the average rate on Belgian customers' savings deposits was just 0.35%. This is despite the fact that the rate earned by Belgian banks from parking their excess cash overnight at Belgium's central bank (the ECB's deposit facility rate) was 2.5% (now 3.25%).
The study noted that the margin between these two rates largely explains the strong performance of Belgian banks during much of the past year: BNP Paribas Fortis – Belgium's largest bank – posted a profit of €3.16 billion in 2022, up almost a fifth (18.8%) from 2021.
"While the ECB has already raised its key rates by 3.5% [now 3.75%] over a few months, the increase in the rates offered by Belgian banks on customer savings deposits has remained very limited... In Belgium, there are margins for banks to increase the rates on savings deposits," the study noted.
The banks bite back
In their published response, Febelfin disputed the claim that they had room to increase rates. In particular, the organisation argued that the relatively low savings rates offered by banks are primarily a consequence of the fact that for many years Belgian savers were protected from the ECB's negative deposit rates.
"Between June 2014 and July 2022, banks had to deal with a negative deposit rate with the ECB, which meant that they had to pay to place their deposits, while in Belgium, the minimum interest rate of 0.11% was still applicable," Febelfin noted. "Belgian savers have therefore never experienced zero or negative interest rates on their regulated savings accounts, unlike many other European savers."
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Febelfin also claimed that it would be extremely expensive for Belgium's banking sector to increase its rates in the way that politicians call for.
"The interest rates on the savings account apply to large volumes," the federation wrote. "Concretely, there are about €300 billion in regulated deposits. Each 10 basis point increase in interest rates on savings costs the sector almost €300 million. An increase of 100 basis points, or 1%, on savings costs the sector €3 billion."