Euro-area bank stocks declined after the European Central Bank raised its penalty on overnight deposits without stepping up the pace of its asset purchases.
The ECB extended the cutoff date for quantitative easing, or QE, by six months to March 2017 and broadened the range of assets purchased. But it didn’t expand the monthly volume of purchases, designed to support lending and revive inflation.
That was “far below the expectations,” said Jacopo Ceccatelli, chief executive officer at Marzotto SIM SpA, a Milan-based brokerage. “Expectations were very high, ranging from an extension of QE of 12 months to a substantial increase in the monthly purchase amount of several tens of billions.”
The STOXX Euro 600 bank index fell 2.4 percent, in tandem with a broader sell-off in European stocks after the ECB decision. Losses were led by National Bank of Greece SA, which closed 30 percent lower and Banco Comercial Portugues SA, which declined 4.1 percent.
The ECB has been buying about 60 billion euros ($65 billion) of assets a month, mostly government bonds, since April. The program has improved liquidity and market financing for banks, while easing credit for businesses, it said in its most recent survey of bank lending.
"Increasing the size of QE could have supported interest expenses,” said Tomasz Grzelak, an analyst at MainFirst Schweiz AG. “The liability costs could have gone down, but they are already low."
While leaving borrowing costs unchanged, the ECB lowered the rate on overnight deposits to minus 0.3 percent from minus 0.2 percent, effectively charging banks more to hold their money.
"Furthering reducing the deposit rate is negative for banks as it puts more pressure on managing their margins," bank analyst Nuria Alvarez from Renta 4 in Madrid said by phone. "It will push them to offer more credit, but demand is scarce and competition is already leading to pressures on prices.”
In the October survey, banks said that monetary policy was generally hurting profitability by tightening net interest income — the difference between what they charge for loans and pay on deposits — and they expect this to continue in the months ahead.
More European banks might now decide to pass on the costs to large clients, Grzelak said. Credit Suisse Group AG and UBS Group AG started charging some corporate and institutional customers interest on deposits after Switzerland imposed negative interest rates on central bank deposits at the start of the year.
The ECB’s decision to further ease monetary policy is “absolutely unnecessary and harmful,” Georg Fahrenschon, president of Germany’s DSGV savings-banks association, said in an e-mail. He has frequently criticized the ECB’s low interest rate policy as penalizing people who save their money.