Interest paid on deposits has been slowly rising and despite banks advertising products with better returns, the Portuguese banking system is the fourth worst at returning savings in the Eurozone.
Since July last year, the European Central Bank (ECB) has been raising interest rates to fight inflation, but the rise in deposit rates has been very slow, despite public pressure on major banks. The president of the republic, Marcelo Rebelo de Sousa, even asked banks for a “little effort” in reimbursing deposits.
In December 2022, the interest rate on new deposits in Portugal was the lowest in the Eurozone at 0.35% (well below 1.44% of the Eurozone average). By then, rates in France and Italy were above 2% and even in Spain (a country with a strong banking group presence in Portugal) the average rate was 0.64%.
In January, the average interest rate rose to 0.56% and in February to 0.65%. In March it rose to 0.90%, but Portugal maintained the second lowest value among euro area countries (just ahead of Cyprus). Only in April did it surpass 1% for the first time since 2015, with an average interest rate on new deposits of 1.03%, moving Portugal from last to third (before Cyprus and Slovenia).
In May, the latest data available, the average interest rate on new term deposits rose to 1.26%, the highest value in eight years.
Compared to other eurozone countries, Portugal remains one of the lowest incomes, with the fourth lowest value in the eurozone, just ahead of Cyprus (0.94%), Slovenia (1.09%) and Croatia (1.25 %). ).
Lithuania, Italy and France lead with the highest interest rates (3.25%, 3.12% and 3.09% respectively).
Despite the evolution, the average interest rate on new deposits in Portugal was almost half of the average interest rate in the Eurozone (2.44%).
The slow rise in deposit rates, according to analysts Lusa spoke to, justifies the good liquidity banks have – this despite many customers looking for alternatives, such as savings bonds (despite a lower fee, which led to criticism of the government accused of giving in to pressure from the banks, which it refused) – but also the fact that the Portuguese are generally not very dynamic in their search for better financial products.
At the end of June, BPI president João Pedro Oliveira e Costa, responding to journalists standing on the sidelines of a lunchtime debate at the International Club of Portugal, said deposit rates would continue to rise, but that it was not “available to to pay deposits at any price” as he wants to maintain the bank’s profitability.
Banks apply excess liquidity from deposits to the ECB, where it currently yields 3.50% (the value of the standing deposit facility).
Lusa asked banks how much they earned on deposits with the ECB in the first quarter, but only Caixa Geral de Depósitos (CGD) disclosed this figure, having earned €118 million from those applications.
In mid-June, the Treasury Secretary in Parliament, questioned about what the government has done to force banks to increase deposits, said he had indications that the public bank CGD is raising deposit rates as it will compete with better wages.
Rapidly rising credit interest
The slow rise in interest rates on deposits contrasts with the rapid rise in interest rates on loans associated with the rise in Euribor rates.
In May, the average interest rate on new home loans surpassed 4% for the first time in 11 years, reaching 4.15%, according to Bank of Portugal (BdP) data, with the increase in Euribor rates also driving the price of old credit (with many families already restructuring loans because they are difficult to pay).
The difference between what banks pay on deposits and what they charge on credit has benefited banks’ financial margin, boosting profits.
In the first quarter, the five largest banks posted a total profit of 919.3 million euros, 54% more than in the first three months of 2022.
BCP had a profit of 215 million euros (90% more), Caixa Geral de Depósitos (CGD) of 285 million euros (95% more), Novo Banco 148.4 million euros (4% more), Santander Total 185.9 million euros (19.6% more) and BPI EUR 85 million (75% more).
Source: DN
