AMSTERDAM The Netherlands' central bank said on Thursday it expects margins at the country's major banks, which have so far held steady despite Europe's ultra-low interest rate regime, to finally come under pressure.
The number two official at De Nederlandsche Bank (DNB), Director Jan Sijbrand, said he expects banks to suffer on two fronts.
First, fixed rate mortgages are being refinanced at lower rates, removing a profitable source of lending. And second, room to lower rates paid on retail deposits has run out.
The country's big banks now pay around 0.2 percent on average for retail deposits - not an attractive proposal from the banks' perspective when they could borrow at below zero on capital markets and must pay the European Central Bank 0.4 percent if they hold excess cash.
But banks see lowering the rates paid to retail savers below zero as a line they are unwilling to cross.
"There appears to be a zero lower bound to the savings rate," Sijbrand said at a press briefing in Amsterdam. "All over Europe we see great hesitance towards negative rates."
He said that banks were aware they would face incomprehension and probably outrage if they actually were to enact a negative deposit rate.
"The already fragile trust in banks will be harmed when people get back less than what they put into their accounts," he said.
Banks may be willing to sacrifice some margin in coming years, in the expectation that eventually rates will return to historical norms, restoring a more normal relationship with retail customers.
"Savings deposits have been an important source of funding for decades, so you want to be careful with that," he said.
(Reporting by Toby Sterling; Editing by Toby Chopra)