Latest BoE Report : Corporates Losing Interest Margins
Latest BoE Report : Corporates Losing Interest Margins
March 2025:
The latest Bank of England data highlights continuing recent trends and should have captured the new corrected reporting by Lloyds Bank. The effective interest rates on corporate banking arrangements remain misaligned with the higher base rates in early 2025. UK based Corporates are losing tens of millions in lost interest margins to banks. Legacy banking arrangements are a drag on the profitability and bottom line of many UK organisations.
With interest rates likely to remain higher for longer this is an issue that must be addressed by Finance and Treasury team. Even though the base rate has been lowered by the Bank of England in recent months market expectations are that interest rates will continue on the high side for the longer term.
Key Insights from the Latest Data
The Bank of England’s effective interest rates for January, published on 3rd March 2025 reveal a modest rise across various deposit and loan categories:
● Sight Deposits: Rates decreased from 2.58% in December to 2.57% in January. This return remains well below the level corporate customers could achieve through more competitive arrangements.
● Time Deposits: Rates fell from 4.19% to 4.15%, reflecting anticipated declines in market rates.
● Loans: Effective rates dropped marginally from 6.58% to 6.51%, indicating lower borrowing costs for businesses. These rates remain high which will be a concern for companies with high borrowings.
The net interest margin for banks remains elevated. Businesses with legacy banking structures are not benefitting from the higher interest rate environment generally.
Addressing the Disparity
The gap between the returns businesses receive on bank funds and the rates they pay on borrowings underscores the need for proactive financial management. Companies actively reviewing and renegotiating their banking relationships achieve significantly better outcomes. For instance, Bankhawk’s benchmarks show that optimally structured banking arrangements can generate significantly improved profitability.
The Path Forward
To mitigate this growing issue, businesses should:
● Benchmark Current Arrangements: Understanding how your effective rates compare to market averages is a crucial first step.
● Engage in Active Negotiation: Leverage data to secure better terms on both deposits and loans.
● Adopt a Proactive Approach: Regularly review and adapt banking strategies to remain competitive.
The latest figures reiterate the importance of taking action now. With banks increasingly profiting from widened net interest margins, businesses must ensure their financial strategies are optimized to safeguard their profitability.
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
-
- The effective rate for sight deposits decreased by 0.01% from 2.58% in December to 2.57% in January.
- The effective rate for time deposits decreased by 0.04% from 4.19% in December to 4.15% in January.
- The effective rate for loans decreased by 0.07% from 6.58% in December to 6.51% in January.
Effective interest rates for: PNFC’s on new deposits and loans:
New business
- The effective rate for time deposits decreased by 0.12% from 4.21% in December to 4.09% in January.
- The effective rate for loans increased by 0.18% from 6.29% in December to 6.47% in January.
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 March 2025
