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Threat of rising bank charges spurs treasurers into action

Increased charges by banks for corporate deposits seem inevitable as interest rates in Europe remain low. Corporates are, therefore, scoping out alternatives.

Sustained low interest rates in Europe are pushing banks towards charging for deposits. 

Lothar Meenen,
Deutsche Bank

Lothar Meenen, head of trade finance and cash management corporates, Germany, at Deutsche Bank, says corporates are well-informed on what charges they are already paying.

“Corporate treasurers and financial officers have very deep understanding of the banking products and partnerships within which they engage, and so make sure to be fully informed as regards to any product fee they are charged," he says. 

"We as a bank ensure that any fee of any product is transparent for our clients.”

To decide how any increases will be implemented, banks will be taking a detailed look at their clients to plan how to pass on costs accordingly.

'Progressive stance'

Amit Agarwal, head of liquidity management services, EMEA, TTS, at Citi, says: “Banks need to be mindful of the large client relationships and take a progressive stance. Currently clients may have an agreement that deposits up to a buffer of say €100 million or under will not be charged. 

"But there is still the cost of holding this money. Banks will need to revisit their agreements and likely reduce the free buffer on deposits.”

The charges might be passed on in different ways, according to the jurisdiction. 

“There are some markets in Europe, for example Italy and Greece, where local regulations make it difficult to apply charges as interest,” says Agarwal. “In these countries there is a rise in fees being charged in the form of account maintenance costs or increased transaction fees.”

Low rates are causing problems for corporates as well as banks. 

Stephen Baseby-160x186

Stephen Baseby, ACT

Stephen Baseby, associate policy and technical director at the Association of Corporate Treasurers (ACT), says there are more corporate treasurers reporting zero-yield deposits, and it is starting to create problems. 

“Corporate control processes are not geared to this and so each needs to reconcile if and what this means,” he says.

Baseby adds that while regulators are questioning why corporates are continuing to hold cash, they are concerned about what could happen to their funds in the event of a bank bail in. Their choice comes down to where they decide to hold their funds.

The decision on where to place liquidity is of increasing concern to corporates due to the continued weak outlook. 

Says Deutsche's Meenen: “We are experiencing a much more active dialogue with clients around deposits. Clients are pro-actively bringing the topic to the table and banks are looking to gain in particular towards stress-test compliant product alternatives, such as term deposits.”

Slow to change

Citi's Agarwal says this movement from treasurers is not before time, as corporates have been slow to change their practices to keep pace with the changing interest-rate environment.

“For the corporate treasurer, there is little incentive to change if there are no costs applied," he says. "They will not look for alternatives if they are still getting a good deal because they are shielded from the real market cost.”

There are options open to them. 

Amit Agarwal-160x186

Amit Agarwal, Citi

Agarwal suggests: “Companies can move to competitive yields in some cases. A European company can convert its euros to dollars where there is a positive yield, but then there is the FX risk to take into account.”

Corporates might find better options if they choose to move their deposits to the bank’s benefit. Agarwal notes banks are looking for longer-term liquidity under Basel III, and clients might find they are able to negotiate better returns if they invest their funds for longer terms.

Banks are also at risk of being impacted by their corporates’ own cash-management strategy if they are not keeping up with the changes in the industry. Once one bank has moved to apply charges, others will have to follow suit, or will find themselves at risk.

Agarwal says: “Banks need to be aware that if their pricing is misaligned to the market they run the risk of being targeted for arbitrage. A bank account is easy to fund, and if a large amount is suddenly paid in there is very little they can do about it. Banks want to do as much as they can to disincentive that.” 

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