Overdrafts prove a cost burden for Europeans banks
German consumers are paying the price for a prolonged slump in lending revenues with banks charging as much as 16 per cent interest on overdrafts even as they gain from record-low rates on refinancing operations.
The rate, levied by Raiffeisenbank Trostberg-Traunreut in the southern German state of Bavaria, is the highest of 424 lenders who disclose the data, according to a survey of 1,472 banks by research group Stiftung Warentest. Deutsche Bank and Commerzbank, Germany's largest banks, charge as much as 10.95 per cent and 11.25 per cent, respectively, the watchdog said in a statement on its website.
Europe's biggest banks are battling a squeeze on lending revenue as efforts by the European Central Bank to revive economic growth lowered bond yields and reduced the amount they can charge on loans. With domestic demand driving an increasing share of Germany's growth, lenders are using its citizens' preference for overdrafts over credit cards to prop up margins in an industry still dogged by crisis. The Bundesbank said consumer spending will support economic expansion in the second half of the year.
"Banks are really under pressure in all areas in this low interest-rate environment," Michael Seufert, an analyst at Norddeutsche Landesbank, said from Hanover. "Consumer protection groups might not like it, but the reality is that they really can't afford to lower the charges on overdrafts and do without those earnings."
Overdrafts are intended to only be a shortterm source of funding, and banks offer their clients advice about other forms of borrowing, Deutsche Kreditwirtschaft, the association which represents Germany's banks, said in a statement on its website.
Germany isn't alone
in charging cus- tomers high rates on overdrafts. Dutch banks demand as much as 15 per cent interest, while Italians face rates of as much as 18 per cent and British banks take as much as 19.9 per cent as well as flat fees if clients exceed their free facilities, price comparison websites in the three countries show. Rates aren't permitted to exceed 20.04 per cent in France, according to the country's central bank.
Germany's biggest banks have failed to keep pace with a recovery in lending income at their competitors.
In 2014, Europe's 25 biggest publiclytraded banks saw their combined net interest income, the difference between what they earn from assets and pay for liabilities, climb 5 per cent to 261.5 billion euros (Dh1.09 trillion; $289 billion) from a year earlier, data compiled by Bloomberg show. That followed two years of declines.
Deutsche Bank's net interest income fell for a third year while the decline at Commerzbank continued into a fifth year, the data show. "Given banks offer savers almost no interest and can borrow at very low rates, a fair rate should be significantly below 10 per cent," Stiftung Warentest said. A customer default rate of 1 per cent doesn't justify the charges, it said.
Germans rely more on their overdrafts than consumers in countries like the US who use credit cards for purchases that outstrip their means, while bank payments on German credit cards are generally booked at the end of the month, said Seufert.
Some 43 per cent of Germans overdraw their accounts "a few times" a year, while 17 per cent do so frequently, according to a survey conducted by polling company Ipsos for the German unit of ING Groep in October and November. German banks had 36.4 billion euros of outstanding overdraft loans in June, the highest level since March, according to the Bundesbank's monthly report.