“May the force (of rates) be with you”. This is how the US bank Citi headlined a note on the accounts of Italian banks. After years of negative rates, it's time for the banks to redeem themselves: thanks to the repeated increases in interest rates decided by the ECB, the credit institutions are doing real business. Returns on current accounts are at a standstill while something is moving on deposit accounts. Here's what's happening.
Bank profits are up sharply thanks to the rate hike
To mention the two major Italian banks, Unicredit e Intesa San Paolo, saw their net interest income, which derives from lending and financing activity, grow by 44% and 53% respectively at the end of March. And the other lenders are also not far away. L'Uilca study office calculates that in the first quarter of 2023 the top nine Italian banks recorded 5,35 billion in profits, +182% on the previous year, thanks to interest margins that rose by 55%, to almost two thirds of total revenues. And the same Citi bank in its note says it is optimistic about 2023 thanks to the spread on rates, despite estimating "a retrocession of interest to depositors in the order of 30-40% in the year": especially from June, when the facilitated funding of the BCE will shrink.
The remuneration of current accounts: this unknown
But for 1.369 billion euros in bank accounts, of which about 800 in the hands of families, there is still no remuneration, a fact that was taken for granted until about a decade ago, when the do-ut-des between banks and account holders was valid: you leave the money in my bank, I can use it and, for this, I recognize you a rate of remuneration. This is a significant portion of Italian deposits, which rose to 1.795 billion according to Abi data for the month of April. So the formula has changed for the banks and it becomes magical: I raise money almost for free and use it at about 4%.
The gap between interest rates on loans and deposits is still widening
The data disclosed from Abi in recent days they confirm the dynamics, even if a timid improvement can be seen. Between March and April the spread between lending and funding rates it widened, from 301 to 317 basis points, getting ever closer to that peak of 335 bps in 2007, in the midst of the US subprime mortgage crisis. The average rate on loans rose from 3,80 to 3,99%. Collection, on the other hand, is paid an average of 0,82%, still very little, even if we see a slight increase from 0,79% in March. On deposits alone, the majority of funding, the rate rose from 0,6% to 0,64%, on current accounts they increased by 3 cents, to 0,29%.
Deposit rates are better
To the objections, the ABI replies that "the current account allows you to use a multitude of services and has no investment function," said Antonio Patuelli, president of the banking association. “If you want to get the money back – he adds – you have to put it in a deposit account”. In effect, the rate on "new fixed-term deposits" was 2,65% in March.
Banks in general defend themselves by saying that, after years of negative rates, they now want to bring hay to the farm and protect themselves in the event of a run at the counter, as has been seen for banks in the USA and Switzerland. For the moment, however, the historical series see Italian deposits stable as a rock, having risen by 130 billion in the 2020-2022 lockdowns.
The situation is different for online banks
Gianluca Garbi, founder and CEO of Banca Sistema, says he does not lump everything together when criticizing Italian banks because they pay little money for deposits, reports Repubblica. There are those who still keep rates very close to zero, such as those who collect through local branches, and those who collect online and adjust daily to market rates: otherwise the customer presses a button and brings the money from the competition.
If there is no remuneration, at least cost reduction
In this situation there are some banks that even ask for a payment to have a bank account. But at least on this ground some banks seem to willing to come meeting with account holders. The costs of current accounts had risen, in some cases even considerably, when rates were negative because even in that case the banks had wanted to protect themselves.
The path of reducing fees has already been taken by some institutions including Intesa Sanpaolo, Unicredit, Fineco and Bper. The reduction of the fee decided by Unicredit, for example, will concern 4,5 million customers who will benefit from annual savings of up to 50 euros each. Intesa Sanpaolo it has not made increases linked to inflation and starting from the end of July, it will completely cancel the only increase applied in 2017, thus restoring the economic conditions of the current account, which had involved only a limited range of customers.
The government's hypothesis of taxing extra bank profits
Precisely the failure to adjust interest rates on deposit assets by banks in the euro area was one of the issues raised by several finance ministers and the economy minister Giancarlo Giorgetti, during the recent meetings in Brussels of the Eurogroup and Ecofin, according to MEF sources, who also said that Giorgetti hopes that a signal in this sense will soon arrive from Italian banks. In recent weeks there had been talk of a possible taxation of extra profits collected by banks in recent months. According to some observers, Giorgetti's words should be understood as a sort of moral suasion to cancel the contractual changes to the detriment of account holders, an alternative to a possible government intervention which could refer to what was done in Spain, where the government adopted a levy of 4,8% on the interest margin.
Someone has also tried to make a minimal calculation: the mere application of monetary yields of 2% on those 1.369 billion in bank accounts would be worth a financial manoeuvre: around 30 billion. According to other sources the moral suasion of the government could be limited ai deposit accounts which, moreover, have already seen yields increase from 0,06% a year ago to 2,65% with peaks of 4%.
Competition from government bonds
At this point, however, the rates on deposits must be compared with the yields on government bonds: a ten-year BTP has a yield of around 4,2%. It is the Italian government itself (wanting to give a name: it is Giorgetti himself) therefore that competes with deposits given that returns, after years of lean cows, are giving satisfaction to investors. Starting with the latest arrival, the Btp Value which will be placed from 5 to 9 June. The government bond will have a four-year maturity with an extra final loyalty bonus equal to 0,5% of the invested capital for those who buy during the placement days and hold it until maturity. As a point of reference, the four-year BTP currently in June 2027 yields 3,49% on the secondary.
Of course, for the Government, however, it is a question of an outlay (the payment of returns), while in the case of the taxation of bank extra-profits it would only be a question - it must be said - of going through the cash register.
