AMSTERDAM (Reuters) - Dutch bank ABN Amro said on Wednesday it would not charge negative interest on deposits up to 100,000 euros ($110,200), as it comes under political pressure to shield retail clients from the effects of ultra-low interest rates.
European banks are grappling with the consequences of the European Central Bank’s September decision to cut its key deposit rate further into negative territory, making it tougher for them to earn money from their traditional lending business.
Dutch finance minister Wopke Hoekstra in September said he would talk to banks about the consequences of negative interest rates, but resisted calls by politicians for an outright ban of them on smaller deposits.
“This commitment means that around 95% of our clients, representing approximately 40% of our deposit base, will be safeguarded from negative rates,” Chief Executive Kees van Dijkhuizen said at the presentation of the lender’s third quarter earnings results.
ABN will continue to apply negative interest rates to the deposits of large clients in its commercial and private banking businesses.
Despite the low interest rate environment, the bank’s interest income was stable in the third quarter, as corporate loan growth offset the pressure on the deposit margin.
But Van Dijkhuizen warned that without higher interest rates it would be difficult to lower the bank’s costs.
“If rates stay low, it will take longer to reach our cost/income target of 56-58 percent”, the Chief Executive said.
The ratio between ABN’s costs and income increased to 59.4% in the third quarter, up from 52.9% a year earlier.
PROFIT DROPS ON ANTI-MONEY LAUNDERING COSTS
ABN said net profit dropped 24% in the third quarter, to 558 million euros, due to higher costs for client oversight as the lender tries to come to terms with strict anti-money laundering rules.
Dutch prosecutors in September started an investigation into ABN Amro, one of three dominant banks in the Netherlands, which they say for years failed to detect money laundering and to report suspicious transactions.
Van Dijkhuizen said it was still not clear when the investigation would be completed and what the outcome would be.
Banks have been forced to keep better track of client behaviour after Dutch bank ING was ordered to pay a record $900 million fine in September last year after criminals laundered money through its accounts for years.
Analysts polled by the company on average had predicted net earnings of 594 million euros, from 738 million euros a year earlier.
($1 = 0.9074 euros)
Reporting by Bart Meijer; Editing by Christopher Cushing, Kirsten Donovan