Low rates to keep sapping bank profits: ECB

FRANKFURT AM MAIN (AFP) – Low interest rates will continue squeezing eurozone banks’ profitability in the foreseeable future, European Central Bank (ECB) vice president Luis de Guindos said yesterday.

“The recent softening of the macroeconomic growth outlook and the associated low-for-longer interest rate environment are likely to weigh further on (banks’) profitability prospects,” de Guindos said at a Frankfurt conference.

Policymakers lowered a key interest rate further into negative territory in September, with -0.5 per cent on lenders’ deposits at the central bank – effectively charging banks to park their cash in Frankfurt. In another move to stimulate lending, growth and inflation, the ECB also restarted its controversial “quantitative easing” bond-buying programme.

“Market analysts are concerned about the drag on bank profitability” from such moves, de Guindos acknowledged, allowing they could eat into banks’ net interest margins – the difference between what they make from lending and the costs of refinancing.

European and especially German banks have much lower profitability than competitors in the United States (US), where rates are higher and regulations less onerous.

But de Guindos argued eurozone lenders should do their homework by adjusting business models, cutting costs and investing in new technologies.