ECB: Real Cost of Banking for Euro Businesses Continues to Rise

According to the ECB data published on 02 August 2023 Euro businesses are contributing €’billions to bank profits because they haven’t optimised their banking arrangements.

Record bank profits are dominating the headlines and this means that businesses are paying more for their banking services. The challenge is that most of the additional costs to businesses are hidden in what banks call the ”net interest margin’. The net interest margin is widening as official interest rates increase.

Many businesses have legacy banking arrangements that don’t allow them to benefit from interest rate increases. This is often because the low-interest rate environment that prevailed since the global financial crisis presented no compelling reason to modernise their banking arrangements. There was little benefit in changing their banking structure as it didn’t impact their profitability.

There is now a compelling opportunity for businesses to improve their revenues by optimising their banking structure and benefit fully from higher interest rates.

Across the Eurozone this opportunity is worth €’billions in additional profit.

ECB June 2023 Statistics Summary

Chart 1

Bank interest rates on new loans to, and deposits from, euro area corporations  (percentages per annum)

“Composite cost-of-borrowing indicator for new loans to corporations increased by 22 basis points to 4.79% In June 2023, driven by interest rate effect” ;

“Composite interest rate for new deposits with agreed maturity from corporations increased by 20 basis points to 3.26%, driven by the interest rate effect” ;

“interest rate for overnight deposits from corporations increased by 6 points to 0.55%, driven by interest rate effect”.

With most corporates achieving no return on current account funds, the opportunity cost of bank funds is growing. The lesson for Finance Leaders is to pay much more attention to banking relationships to ensure that with the huge interest rate changes – they continue to be fit for purpose.

Many corporates are using Bankhawk’s Banking Optimisation Benchmarking to optimise their banking relationships and the return on their cash.

Source: European Central Bank/ Euro area bank interest rate statistics / 2nd August 2023

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