German companies hit by negative interest rates

A recent survey finds that German banks have tried to charge 20% of corporate customers negative interest rates.

Source: Financial Times

Almost one in five German companies has had their bank trying to charge negative interest rates — meaning they would have to pay the lender for the privilege of keeping their money on deposit.

The findings of a survey by Ifo, the Munich-based think-tank, shows the widespread effect of the European Central Bank’s ultra-low interest rate policy on the corporate sector in Germany, the eurozone’s economic powerhouse.

“Even if this is a small charge that banks are asking businesses to pay, [imposing negative interest rates] makes companies change their financial management,” said Christa Hainz, one of the authors of the report.

It also highlights the problems faced by banks — which have been highly critical of a central bank policy that they say erodes their profit margins — in trying to pass on the negative rates to their customers.

Fewer than one in 10 of the companies that were threatened with a negative interest rate on their deposits ended up paying, with many shifting cash into other financial assets or changing their bank.

Banks across the eurozone are forced by the ECB to pay a charge of 0.4 per cent on a large chunk of their deposits held at national central banks within the eurozone — in Germany’s case at the Bundesbank.

The ECB cut the rate below zero three years ago, aiming to boost lending and growth by making it relatively more attractive for households and firms to spend more. The policy has been particularly controversial in Germany because its relatively strong economy is in far less need of the ECB’s “one size fits all” stimulus than that of weaker peripheral eurozone countries.

The Association of German Banks, which represents private-sector lenders, declined to comment on the research but said negative rates were a problem for lenders.

“It is a great challenge, especially in Germany, where we don’t need [the policy]. Perhaps in Spain and Italy it is difficult for companies to find credit, but not here,” the association said. Ifo’s survey poll found that almost 20 per cent of firms had seen their banks try to charge negative interest rates on their deposits.

The practice was much more common among larger firms, which tend to hold more cash in their deposit accounts, than among smaller rivals. However, the research did suggest the ECB policy could have had some impact on boosting growth, with 11 per cent of companies saying that the threat of negative interest rates had led them to increase or bring forward investments.

About half of companies threatened with the charges began to negotiate with the bank, while more than one-third joined another lender. Thirty per cent bought other assets or repaid loans and 29 per cent redeployed their money elsewhere in their companies. Individuals are less likely to face negative interest rates although a few lenders in Germany have imposed charges on people with high amounts of savings.