Higher interest rates for small savers “just not worth it” says banker

A leading Portuguese banker said on Tuesday that increasing interest rates for small investors with €1000 or so just isn’t worth it for the banks and would cost them a small fortune.

However, when it comes to customers with more substantial savings, higher interest rates are negotiated privately to stop them shifting their savings to the competition.

This was according to the President of Portugal’s third largest high street bank BPI, João Pedro Oliveira e Costa who said that the question of passing higher interest rates onto savers was more complicated than the public was led to believe by the press, and many factors came into play such as the amount deposited in savings accounts, the length of time the saving were applied, and which savings products were involved.

The banker was addressing business leaders and figures from the banking world at a luncheon organised by the International Club of Portugal at the Sheraton Hotel & Spa in which he said he wasn’t at all concerned that small savers were shifting their savings into government savings bonds or certificados de Afforo which have been offering higher rates of return than the banks of up to 3.5% in recent months.

In answer to a question from Essential Business he confirmed that BPI had in fact raised interest on savings accounts in line with competitors and would continue to do so, but “not at any price” that would undermine the banks solvency margins. The banker did admit however that Portuguese banks were behind the European average when it came to passing on higher interest rates to savers because the banks wanted to preserve their profitability.

João Pedro Oliveira e Costa reminded that the banking sector had suffered greatly during the Portuguese banking crisis 10 years ago when most were overloaded with NPLs, had small margins and liquidity, and were over-leveraged, resulting in most Portuguese banks vanishing with only Millennium bcp, BPI and Montepio still standing among the private home-grown banks.

“I want to retain my customers’ deposits but I am not prepared to dish out (interest) to depositors at any price”, he said.

The statement comes at a time when the President of the Republic, Marcelo Rebelo de Sousa called on the banks, which made healthy profits in 2023, to start passing on some of these benefits to savers.

But the banker said that on average one-year savings accounts were earning savers 2% for interest bearing deposits.

When asked about the Government’s decision to lower yields on the newly launched savings bonds and if it alleviated the pressure on Portugal’s banks to hike interest rates on savings accounts, João Pedro Oliveira e Costa agreed it had — the Portuguese Banking Association APB has denied it had put pressure on the government or the Bank of Portugal to not offer such generous interest on the new Series F bonds — and added that BPI had already noticed a slowdown in the number of account holders transferring their savings out of savings accounts into savings bonds (which the banks also sell).

As to the remarks by the President of the Republic to make “more of an effort” to make Portuguese small deposits more attractive to savers by offering higher interest rates, the banker said BPI had not made “a bit more effort, but had constantly attended to keeping its house in order”.

On the question of interest rates on mortgage repayments, João Pedro Oliveira e Costa said: “BPI will make an effort to make sure that Portuguese (who have mortgages with them) will hold on to their homes regardless of the how interest rates develop” and would use a “cash cushion” for this end.

In his 20-minute presentation accompanied by slides he also pointed out that the bank did a lot for charitable and social causes which got little or no press coverage and which people just overlooked. He referred to the taxes the bank paid, the fact that it had preferred to increase its staff salaries that would have a lasting impact on families than pay short-term inflation busting payouts, and outlined the work of the La Caixa Foundation, pointing out that banks were very often pilloried for various ills since they were an easy target.

“Well, you’ve got to point the finger at someone, its those guys (the bankers)” he said with some justification.*

The press and left-wing political figures in Portuguese society widely debated that the tax payer had bailed out the banks 10 years ago to the tune of millions — true in the case of BES and many other banks including BPI with around €23Bn paid out to bailout the Portuguese banking system.

But although BPI lost around €508 million in 2011 because of exposure to Greek debt, the bank led by Fernando Ulrich at the time completely paid back a government bailout from the Portuguese treasury and with interest, and always said its financial difficulties were not because of sour loans (NPLs) from companies.

At that time, after a recommendation from the European Banking Authority, BPI asked for “a temporary and exceptional capital injection of €1.4Bn as a result of “the increased prices” on money market credit as a result of exposure to sovereign debt” of which €1Bn was exposure to Portuguese sovereign debt and €200,000 from Greek sovereign debt.

“People like to say that €23Bn was spent on saving Portugal’s banks, but that’s not true; it was to save customer deposits and four banks vanished (from the crisis) and two, including BPI, paid back every red cent including 5% interest to the State. There’s a lot of ignorance and rhetoric”, he said.

For example, João Pedro Oliveira e Costa said that during the Covid-19 pandemic, after hearing the President of Portugal’s Food Bank, Isabel Jonet make an appeal on television that food warehouses for donated food were empty, he created a Whatsapp account with the presidents of the other banks which raised €2.5 million from companies and private individuals.

“It was a big fundraiser but it didn’t make the news, no one said anything. I didn’t do this because I wanted the publicity, I did it because it pricked my conscience.”

As to house prices, the BPI president said that despite a fall in house transactions because of uncertainty around the economy and interest rates, house prices remained high because of lack of offer in the market. “If we don’t increase supply, palliative support can help (I.E, the Government’s More Housing policy) but it won’t solve the problem,” he concluded.

*Editor’s note: During the Great Financial Crisis of 2007-2015 there was a common joke doing the rounds in the UK, I recall, which went: “What do you call 200 bankers on a double-decker bus at the bottom of the sea? A result!”

It is true, to a certain extent, that everyone loves to hate the ‘greedy’ bankers who rake it in when everyone else is suffering a downturn, but this is an old and traditional trope, a vestige from the past interlinked in Europe to anti-semitism in the 19th and 20th centuries when the banks were seen as controlled by Jews who were perceived to be making huge profits during the Depression years. (not actually true)