The interest rate paid on deposits has been rising slowly and, despite the fact that banks advertise products with better payouts, Portuguese banks are the fourth worst at remunerating savings in the euro zone.
Since July last year, the European Central Bank (ECB) has been raising interest rates to fight inflation, however, the rise in interest on deposits has been very slow, despite public pressure on major banks. The President of the Republic, Marcelo Rebelo de Sousa, has even asked the banks for a “little effort” in remunerating deposits.
In December 2022, the interest rate on new deposits in Portugal was the lowest in the Eurozone, at 0.35% (well below the 1.44% of the Eurozone average). Already then in France and Italy the rates were above 2% and even in Spain (a country with a strong presence of banking groups in Portugal) the average rate was 0.64%.
In January, the average interest rate went to 0.56% and in February to 0.65%. In March it rose to 0.90%, but Portugal maintained the second lowest value among the euro area countries (only ahead of Cyprus). Only in April did it exceed 1% for the first time since 2015, fixing at 1.03% the average interest on new deposits, moving Portugal to second-bottom place (ahead of Cyprus and Slovenia).
In May, the latest available data, the average interest rate on new time deposits rose to 1.26%, the highest in eight years.
Compared to the other countries in the euro zone, Portugal continues to have the lowest salaries, with the fourth lowest value in the euro area, only ahead of Cyprus (0.94%), Slovenia (1.09%) and Croatia (1.25%).
Lithuania, Italy and France lead the way with the highest interest rates (3.25%, 3.12% and 3.09% respectively).
Despite the evolution, the average interest rate on new deposits in Portugal was almost half of the average interest rate in the euro zone (2.44%).
According to analysts with whom Lusa has spoken, justifying the slow progression of interest on deposits is the good liquidity that the banks have – this despite many clients seeking alternatives, such as savings certificates (although they have lowered the remuneration, which led to criticism of the Government accused of giving in to pressure from banks, which it refused) – but also the fact that the Portuguese are generally not very dynamic in seeking better financial products.
In late June, in answers to journalists on the margins of a lunch-debate of the International Club of Portugal, BPI’s president, João Pedro Oliveira e Costa, said that interest rates on deposits will continue to rise, but that he is “not available to pay deposits at any price” because he wants to preserve the bank’s profitability.
Banks apply excess liquidity from deposits to invest in the ECB, where it currently yields 3.50% (the value of the deposit facility).
Lusa questioned the banks about how much they earned in the first quarter with the deposits placed with the ECB, but only Caixa Geral de Depósitos (CGD) disclosed this figure, having earned 118 million euros with those applications.
In mid-June, in parliament, when questioned about what the government has done to force banks to raise deposits, the Secretary of State for Finance said that he has indications that the public bank CGD is raising interest on deposits, considering that this will encourage competition with improved remuneration.
The slow progression of interest on deposits contrasts with the rapid rise in interest on loans, in line with the rise in Euribor rates.
In May, the average interest rate on new mortgages exceeded 4% for the first time in 11 years, settling at 4.15%, according to data from the Bank of Portugal (BdP), with the rise in Euribor rates also increasing the price of old credit (with many families already restructuring credits due to difficulties in paying them off).
The difference between what banks pay on deposits and what they charge on credit has benefited banks’ net interest income, pushing up profits.
In the first quarter, the five largest banks had aggregate profits of 919.3 million euros, up 54% from the first three months of 2022.
BCP gained 215 million euros (more 90%), Caixa Geral de Depósitos (CGD) 285 million euros (more 95%), Novo Banco 148.4 million euros (more 4%), Santander Totta 185.9 million euros (more 19.6%) and BPI 85 million euros (more 75%).
