A recent analysis released by S&P Global has revealed that the majority of European banking giants have experienced a decline in deposits over the past year. This decrease in deposits can be attributed to customers actively seeking better savings deals to combat increasingly expensive debt.
The report indicates that total deposits at European financial institutions in France, Germany, Spain, Italy, and the Benelux and Nordic regions decreased by 3.9% to €21.675 trillion ($23.68 trillion) in the 12 months leading up to June 2023. The decline in deposits was evident across all markets, with Spain leading the way with a 9% decrease. Out of a sample of 24 of Europe’s largest banks, two-thirds reported decreases in deposits, with the largest percentage falls seen at Sweden’s Skandinaviska Enskilda Banken (13%) and the UK’s NatWest (12%).
This shift in depositor behavior is driven by a desire to pay down more expensive forms of debt, such as mortgages. Katie Murray, the CFO at NatWest, noted that their clients have been switching from non-interest-bearing accounts to term deposits. By using their deposits to pay off debt, customers can mitigate the impact of rising interest rates.
The decline in deposits comes as benchmark interest rates are increasing across the continent. Policymakers are grappling with soaring inflation, and as a result, banks have faced criticism for not raising savings rates as quickly as lending rates, including mortgage rates. This disconnect between savings and lending rates has caused dissatisfaction among consumers.
However, the analysis also highlighted that some banks managed to buck the trend in the April-June quarter, with 18 of the lenders reporting a quarter-on-quarter rise in deposits. This suggests that there are still opportunities for banks to attract and retain depositors through competitive savings deals.
In conclusion, European banks have witnessed a significant drop in deposits as customers seek higher-yielding savings products to tackle their growing debt burdens. This trend is driven by rising benchmark interest rates and the need to pay off more expensive forms of debt. While some banks have managed to attract deposits, the overall decline reflects a changing landscape in the European banking sector.