ECB: Euro Corporations getting poor yields from their banks

The results of the EuroFinance Corporate Treasurers 2023 Survey makes interesting reading.

Treasurers were asked what effective rate should a company earn on bank funds?

10% of Treasurers thought it should be less than 2%.
47.5% of Treasurers expected it should be between 2% and 4%.
27.5% of Treasurers expected the return should be greater than 4%
The remainder responded ‘don’t know’.

Data from the ECB suggests that most Treasurers are optimists!

According to the latest ECB data published in November 2023 Euro businesses have poor banking arrangements which are proving even more costly in the new interest rate environment.

As the average cost of new borrowings has risen from 4.99% to 5.09% Euro corporations are earning an meagre average return of only 0.75% on overnight deposits. Most current accounts earn no credit interest. The banks are increasing their profits at the expense of corporations.

Legacy banking structures are much to blame for the poor yields. Many organisations continue to operate with banking structures that were put in place many years ago when the banking industry was vastly different. Some corporations are hindered by poor technology offerings from their own banks.

Organisations can update the struct and configuration of their bank accounts without negatively affecting their existing banking relationships. They must however be proactive and ensure their bank funds are optimised.

Most organisations have banking arrangements that date back over a long period of time and are no longer fit for purpose. At near negative and near zero rates there was no business case for change. However collectively they are losing billions by not taking any action and making changes.

Bankhawk works with organisations to help them to ensure their banking and payments arrangements are optimised.

ECB September 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 10 basis points to 5.09%, driven by interest rate effect
• Composite interest rate for new deposits with agreed maturity from corporations increased by 15 basis points to 3.58%; interest rate for overnight deposits from corporations increased by 10 basis points to 0.75%, both driven by interest rate effect

Source:  ECB/statistical release/ bank interest rates/ November 2023

With many companies achieving no return on current account funds, the opportunity cost of bank funds is growing. The lesson for CFO’s and Treasurers is to re-evaluate the real cost of banking and establish the business case for making changes and stem the losses.

Bankhawk’s core service for companies, with three essential elements – audit, benchmark and optimise – provides companies with the know-how to update their legacy banking arrangements and generate large cost savings and maintain their existing banking relationships.

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