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After Deutsche Bank, Commerzbank also wants to pass on negative interest rates to its customers. In addition to large corporations, smaller companies and wealthy individuals also have to pay interest on their bank balances. Stephan Engels, chief financial officer of Germany's second largest bank, said this in a call with analysts at the bank.
Like all banks in Germany, Commerzbank is struggling with the ECB's interest rate policy. To discourage saving, it uses negative interest rates on banks' excess reserves so that they pass it on to their savers. Still, many banks are reluctant, fearing negative publicity and losing customers. Commerzbank's chief financial officer expects more problems.
In an interview with Bloomberg Commenting on the policy of negative interest rates, he said:
"The question of how we get out of this is, frankly, I think the most frightening. It is completely unclear how we are going to get out of this tragedy. That's why we're all getting a little bit more anxious every quarter, because we don't know how to turn this situation back to a situation where interest rates can go back to doing what they're supposed to do, which is directing capital flows in the economy. Negative interest rates don't do that well, I think that's pretty clear."
More and more banks in the Eurozone are trying to pass on the costs of negative interest rates to their customers. Initially only for business clients, but now also for high-net-worth individuals. Banks pay billions annually in negative interest on their excess reserves. In September Reduced the ECB has reduced the deposit rate from -0.4% to -0.5%, putting further pressure on banks' profitability. This also explains why they are more likely to pass on negative interest rates to savers.
"In general, the German banking sector, as well as that of a number of other northern European countries, rely heavily on savings as a stable source of financing. If you adjust the prices of that, you have to take into account the behavioral aspect of that. What you want to avoid is that you suddenly scare off a large number of customers, causing your balance sheet to shift more than you would like. That's why everyone tries to do it in small steps.
People now understand the message that you have to pass on part of the burden of negative interest rates to some of the customers. To make a simple comparison. Commerzbank has more than €200 billion in savings. Add minus half a percent to that as the cost of that and then you have a good idea of why this issue is becoming more important by the day."
This week, Commerzbank came up with a Profit warning, because it expects to make less profit this year than last year, partly due to the central bank's policy. The bank's stock has been under pressure for some time, as has that of many German banks. The entire German banking sector suffers from negative interest rates because their business model depends on the collection of savings. But that is no longer interesting due to the central bank's interest rate policy.
According to Engels, a new discussion needs to be held about the central bank's interest rate policy. According to him, low interest rates have a positive effect on consumption and investment, but negative interest rates bring many undesirable side effects. As a result, people become insecure about their savings and their pensions, which in turn causes them to save more and keep their hands on the purse strings. As a result, the central bank's policy misses the mark. As a result, Commerzbank has to restructure and cut costs by cutting jobs.
