Banking rates keep spiraling down, trend expected to endure

Do you remember the 100-120% annual rates offered by the banks for one-month deposits back in 1997? Those days are long gone, with the banks now paying ten times smaller rates. Or, to make it simpler, slash one zero and you get the new rates paid by the banks for the money attracted from the population and the legal persons.
After Raiffeisen Bank Romania said that, as of yesterday, it had cut passive rates (for deposits) by an average of two percentage points and was paying a fixed annual rate of 12% for one-month deposits, Banca RomA„sna pentru Dezvoltare (Romanian Development Bank-BRD) – Groupe Societe Generale yesterday hit the market with a 3% cut of deposit rates. These cuts are very significant because the two banks are among the trendsetters and a large part of the people’s savings are in their vaults.
BRD is now practically offering only a 10% rate every year. No, this is no mistake! And a simple calculation shows us a monthly gain of only 0.83%, below the monthly inflation rate. In other words, at least for short intervals, deposits bear negative real rates (they no longer cover inflation).
The hefty rate cuts for deposits are grounded by banks on the descending trend of the rates paid by the National Bank of Romania (BNR) for deposits attracted from the money market and by the Finance Ministry for the T-bills.
In the past three weeks, against the excess liquidity on the money market and as part of a strategy to cut the market sterilisation costs, the central bank has managed to slash almost three percent off the rates paid for deposits attracted from banks. From a maximal interest rate of 18.5% in mid-February, the NBR was paying an yearly 15.5% at the end of last week.
“The rate cut for banking deposits practically follows the trend taken by interest rates on the money market. Considering the last week’s moves, our decision to cut rates is more than well-timed. Other banks will probably make the same move. If this trend maintains, we will probably see rates below 10% soon,” says Cristian Sporis, chief-dealer with Raiffeisen Bank Romania.
Claudiu Cercel, head of BRD-SocGen’s market operations division, feels the same way. Moreover, he says that the other costs banks must bear in relation with banking deposits should not be overlooked, either.
“Beside the interest rates paid to the depositors, the banks also must bear costs related to the minimal compulsory reserves and the contribution to the Deposit Guarantee Fund. So these cuts should come as a surprise to no one. Furthermore, it is obvious that banks cannot suddenly cut their margins (i.e. the gaps between rates asked for credit sand rates paid for deposits),” Cercel comments.
oana.nuta@zf.ro