Due to the success of the government bond, savers will indeed receive a higher interest on their account, says KBC boss Johan Thijs. The competition among Belgian banks is even fairly intense, it sounds. This does put a brake on the income of the bank and insurer.
‘It was mainly wealthy customers who bought government bonds’
The federal government will decide next week whether to launch another fiscally attractive government voucher. “But will it be there to finance the Belgian government debt or for something else?” asks KBC CEO Johan Thijs.
The federal government launched the tax-friendly government bond this summer as an alternative to the low-yielding savings accounts of traditional banks. But the government bond proved to be a success mainly among wealthy customers, the KBC boss notes.
‘About a quarter of our customers with assets of more than 250,000 euros signed up for the government bond. For customers with smaller assets, this was one in a hundred.’
The competition watchdog says the Belgian retail banking market has all the hallmarks of an oligopoly dominated by just four major players: BNP Paribas Fortis, KBC, Belfius and ING Belgium. The big four banks tend to “drive like a pack” and offer consumers products on commercial terms that are largely similar, the regulator says.
A heavy blow, but Thijs emphasizes that the Competition Authority is not accusing the four major banks of making cartel agreements. ‘That’s not the case either. Moreover, I note that in other countries in Europe you do not see major differences between the interest rates that banks offer on their savings accounts. When customers choose a bank, they don’t just look at what it offers in a savings account. They look at the totality of the services that are offered.’
The KBC CEO further notes that the Belgian competition watchdog started its investigation into the Belgian banking market in June. ‘What the banks have done in the past five months is not taken into account. All major banks have now announced that they will increase the interest on their savings accounts.’
According to Thijs, the overwhelming success of the government bond has indeed led to more competition on the Belgian savings market. ‘The rates that are currently in force fluctuate between 2.5 and 3 percent. The competition among Belgian banks is even fairly intense. Mission accomplishedmission accomplished, for the government.”
In order to stimulate competition in the savings market, the BMA proposes, among other things, to abolish the difference between the basic interest rate and the fidelity premium that savers receive if they leave their money in their account for twelve months.
“If you do that, you bring a completely different dynamic to the market and you irrevocably change the range of savings products,” says Thijs. ‘That doesn’t necessarily have to be better. By offering a higher fidelity premium, banks can hold money for a longer term and can compete with other products, such as a term deposit.’
The government bond appears to be putting a brake on KBC’s income
, according to the third-quarter figures that the bank and insurer published on Thursday morning. The group expects its interest income to remain stable at 5.4 billion euros next year, making it a bit more gloomy than analysts had expected. That was also the reason why KBC shares plunged to their lowest level in twelve months on Thursday shortly after the opening bell, although the price was able to recover afterwards.
KBC customers subscribed to government bonds worth 5.7 billion euros, causing the bank to immediately lose cheap operating resources. According to the bank, this has an impact of 212 million euros on net interest income, the difference between what it earns on providing loans and the interest it pays on savings products. At the same time, for safety’s sake, the bank assumes that the lost deposits will not flow back when the government bond expires in September next year. ‘But it goes without saying that our commercial objectives in that area are different.’
Although it is not just the government bond that weighs on KBC’s forecasts. Since September, banks have also no longer received compensation for the reserves they are required to maintain with central banks, which would reduce KBC’s revenues by another 200 million euros next year. At the same time, KBC also warns against the decision of the federal government to adjust the banking tax for the major banks and to abolish the tax deductibility of taxes and levies. The bank expects that these two measures will weigh 40 million euros on the figures next year.
At the same time, the banks’ contribution to the deposit guarantee scheme would also be increased. This would already have a negative impact of 10 million euros in the fourth quarter. For next year it would amount to 24 million euros.
Thanks to a strong insurance branch and relatively low provisions for problem loans, the group was able to post a better-than-expected net profit of 877 million euros or 2.07 euros per share. That is 17 percent more than in the third quarter of 2022.