Bank of England: Paltry Returns on Bank Cash Frustrates UK Businesses
UK CFO’s have a bit more to cheer about as the UK banks are paying more for their bank funds. However in many cases the increase in deposit rates will be offset by the increased cost of borrowing.
For the first time in this interest rate cycle we are seeing steeper rises in credit interest rates than borrowing rates. This tapering-off of the net interest margin is a direct result of greater competition for corporate and institutional funds.
Record UK bank profits might have peaked which is good news for hard pressed UK businesses, however the higher interest rate environment is generally unhelpful.
What we are seeing now in Bankhawk is a disparity between businesses with optimised banking arrangements and those with sub-optimised legacy banking structures. The latter is unwittingly subsidising the former and feeding enormous bank profits. The banks are grazing on lots of idle cash!
Legacy banking and payments arrangements don’t allow businesses to benefit from interest rate increases. Low interest rates have made businesses lazy and they are leaving vast amounts of cash in low interest earning bank accounts. Poor structure and configuration of bank accounts is the major factor in the rise of hidden costs in UK businesses.
The latest statistical release from the Bank of England published in August 2023 shows a slow improvement in the UK banks term deposit rates for businesses but overnight rates lag the Bank of England base rate increases.
The headlines show an increase in the effective rate for sight deposits from 2.17% in June to 2.34% in July and an increase in the effective rate for time deposits from 3.88% in June to 4.22% in July.
Bankhawk is in New York next week to bring its pioneering service that has helped many leading European businesses to optimize their banking and merchant payments activity to the US.
Bankhawk customers can typically achieve a 10X return over 5 years by reducing costs and releasing trapped and idle cash.
PNFCs deposits and loans
A PNFC is a private non-financial corporation.
Effective interest rates for: PNFC’s on stock outstanding of deposits and loans
Outstanding facilities
1. The effective rate for sight deposits increased by 0.17% from 2.17% in June to 2.34% in July.
2. The effective rate for time deposits increased by 0.34% from 3.88% in June to 4.22% in July.
3. The effective rate for loans increased by 0.19% from 6.32% in June to 6.51% in July.
Effective interest rates for: PNFC’s on new deposits and loans
New business
1. The effective rate for time deposits increased by 0.34% from 4.24% in June to 4.58% in July.
2. The effective rate for loans increased by 0.36% from 6.36% in June to 6.72% in July.
Table: Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)
Per cent – Not seasonally adjusted
Source: Bank of England – Statistics – Published on 30 Aug 2023
