ABN Amro's Q3 profit drops 24pc on higher costs

ABN Amro became the first of the three big Dutch banks to bow to political pressure and promise not to apply negative interest rates to savings accounts of less than 100,000 euros ($110,200).

The banking industry is grappling with the consequences of the European Central Bank's September decision to cut its key deposit rate further into negative territory, making it tougher to earn money from traditional lending. Many banks, including ABN Amro which is still 56 percent government owned, already charge negative interest rates on deposits held by large clients and have lowered the rates they offer on smaller savings accounts close to zero.

Consumer groups in The Netherlands have warned that many savers are likely to take their money from the bank and simply keep it at home if banks were to charge customers for holding deposits in their accounts.

Dutch finance minister Wopke Hoekstra said in September he would talk to banks about the consequences of negative interest rates, but resisted calls by politicians for an outright ban of them on smaller deposits.

ABN Amro is one of three dominant banks in the Netherlands. The other two large banks, ING and Rabobank , have repeatedly said they do not wish to charge retail clients for holding deposits but have not made any promises.

ABN's CEO Kees van Dijkhuizen said his bank's promise meant that 95 percent of clients would be safeguarded from negative rates, representing around 40 percent of all deposits at the Dutch bank.

The bank will continue to apply negative interest rates to the deposits of large clients in its commercial and private banking businesses, and currently only offers an interest of 0.01 percent on small savings accounts.

ABN Amro also reported a higher-thanexpected 24 percent drop in third-quarter net profit, to 558 million euros, due to higher costs for client oversight as the lender tries to come to terms with strict anti-money laundering rules. The profit miss sent ABN's shares down 5 percent at 1055 GMT, making them the biggest loser in the blue chip AEX-index.

Dutch prosecutors in September started an investigation into ABN Amro, which they say has for years failed to detect money laundering and to report suspicious transactions.

Van Dijkhuizen said it was not clear when the investigation would be completed and what the outcome would be.

Banks have been forced to keep better track of client behaviour after ING was ordered to pay a record $900 million fine in September last year after criminals laundered money through its accounts for years.

Following ING's fine, the Dutch central bank warned that other Dutch banks were also too lax on money laundering. ABN has since invested 226 million euros to safeguard against money laundering and said it would detail new plans to improve the detection of financial crimes before the end of the year.