Greek banks are considering the scenario of imposing negative interest on large deposits by corporations, due to the high cost that excess liquidity in the economy entails for them.
The continuing increase in deposits, which according to Bank of Greece data grew by 1.5 billion euros in August, will likely become a problem for the country’s lenders as they have to return any excess liquidity to the European Central Bank with negative interest.
Greek bank groups have already introduced this measure in Cyprus, and sources now say they are contemplating doing the same in Greece too. At a Bank of America roadshow Eurobank officials confirmed its intention to examine the idea of negative interest on corporate deposits in Greece, while Kathimerini understands such considerations are also shared by the country’s other systemic banks.
Sources say that if the measure is applied, it will concern very large deposits – i.e. those above 10 million euros – as a counterincentive for continuing inflows that then remain stagnant in bank accounts without being invested.
Deposits in Greece amounted to €173.4 billion in August, close to a decade-high, with €41.7 billion of that belonging to companies. At the same time banks have drawn €47 billion from the ECB through the TLTRO program for liquidity. Therefore the increased cash flow combined with the deleveraging of banks’ portfolios from bad loans have sent the liquidity index (loan-to-deposit ratio) tumbling: At the end of the second quarter the index stood at 58.6% for National Bank, 64.7% for Piraeus, 75.4% for Eurobank and 83.3% for Alpha.
The concerns expressed over whether the measure of negative interest rates can be introduced are related to the rise of inflation and the fact that at some point the TLTRO cash flow program will end, probably at the end of next year.
In Cyprus all banks have a negative interest rate policy, in order to contain the influx of deposits that has led the liquidity index below 50%. The threshold for negative interest – which amounts to -0.50% – is €100,000, while in some cases the toll account holders pay is in the form of a commission.