Liquidity squeeze favors depositors
A liquidity squeeze in the financial system is pushing interest rates higher as returns on savings deposits reach 3 percent versus 2 percent just a few months ago. Competitive conditions among major lenders are being intensified by smaller banks chasing after a piece of the country’s deposits pie. Indicative of the increased need for liquidity is FBBank’s recently launched investment product that offers an interest rate of up to 3.75 percent. The savings account earns an interest rate of 3 percent in the first quarter, followed by rates of 3.30 and 3.50 percent in the second and third quarters respectively. In the fourth quarter, it earns a rate of 3.75 percent on a product where the customer also has the right to withdraw part of the account’s funds before it expires. The rising yield of Greek government bonds has made it more expensive for banks to tap the markets for funds through securitization. The high rates at which the government borrowed money via the recent auction of a five-year bond, at a rate of 6.20 percent, is weighing on lenders’ ability to raise funds, forcing them to make do with the present liquidity in the system. At the same time, legislative changes introduced by the Finance Ministry have made it more difficult for banks to securitize loan portfolios that have been further burdened with provisions for bad loans in excess of 20 billion euros.
