There is too little competition between the major Belgian banks, the Competition Authority (BMA) says in a new report. Why is that, and is the solution in abolishing the fidelity premium? Economist Selien De Schryder (UGent): ‘If banks are obliged to communicate more clearly, this will benefit consumers.’
The major banks currently offer no more than 1.5 percent interest on their standard savings accounts. Is the competition watchdog right: is there too little competition?
“That is an argument that has been used for a long time in the debate surrounding low savings rates, and it is now reaffirmed by this report. The increase in savings interest rates is indeed very slow. This is partly strategic: the vast majority of savers are with one of the major banks, and if no one from the major banks takes a big step, the rest should not follow suit. It is expensive for a bank to raise interest rates, so if the others don’t move, why on earth should you?”
The competition watchdog proposes to abolish the loyalty premium. Would that change much?
“The return for the saver now often lies in the fidelity premium, because it is sometimes a multiple of the base interest rate. However, certain conditions are attached to this loyalty premium and these are not always clear. For example, you must leave your money for twelve months to enjoy it, but it is often unclear whether you are still entitled to it when you switch to another savings account within the same bank. And when it is too complex, people are more likely to stay where they are. That hinders competition. If there is more clarity, you can expect that customer to compare more actively.”
Is the abolition of the fidelity premium also a realistic proposal?
“You see that this loyalty premium does not exist in many European countries. So the proposal to abolish it in Belgium is certainly realistic. It would certainly be more transparent. Whether it will also lead to higher interest rates is another question. You would expect it to lead to more competition. Customers also have a responsibility to respond more quickly to interest rate changes, but it is up to politicians to adjust the legal regulations to ensure that there is transparency.”
When the one-year government bond was issued a few months ago, didn’t major banks also raise their interest rates?
“They have indeed increased, but that is happening very slowly. Moreover, it is not that easy for a saver to see exactly what benefit it brings you.
“The one-year government bond was communicated very clearly: ‘There is a decrease in withholding tax, and this will be your return.’ With the government voucher, the government tried to stimulate competition, and consumers were also interested in this. Consumers clearly did not like the return they received. This indicates that if people are better informed, they really want to take that leap.
“I think the government should focus on making it much easier to compare and change banks. When there is more competition, and banks will have to fight more for savers’ money, we expect that there will be a more dynamic response to interest rate changes.
“The discussion about the government voucher has made consumers more aware of the fact that they can change. The attention to that government bond in the media has caused people to think and inform themselves. Apparently there is still a lot of ignorance about the options: investments, bonds… You have many more options than just that savings account. If banks were required to communicate more clearly, this would benefit consumers.”
Minister of Finance Vincent Van Peteghem (CD&V) announced on Thursday that a new round of government bonds will be issued in December to increase the pressure on the banks.
“That is remarkable, because there are many economists who react quite negatively to the government bond. The first round was clearly a success, but since the financial crisis, banks have had to be able to withstand certain stress tests. Well: that government bond was a gigantic stress test for the banks because it involved so much liquid assets that were withdrawn from the banking sector. It is therefore an exercise that should not be repeated constantly, because it still entails a certain risk.”