MADRID, Jan 10 (Reuters) - The Bank of Spain has recommended lenders cap interest rates on deposit accounts, three banking sources said on Thursday, in an attempt to quell a profit-eroding price war aimed at boosting capital.
Many of Spain’s lenders have been cranking up deposit rates on timed accounts to lure more customers in a battle for funds at a time of restricted access to international money markets for Spanish banks during the euro zone debt crisis.
Spain’s weakest banks have received most of a 39 billion euro ($50.87 billion) European credit lifeline aimed at plugging a capital gap stemming from a decade-long property boom and subsequent crash.
The central bank has made an informal, verbal recommendation to banks to cap interest rates at 1.75 percent for one year deposits, rising to 2.75 percent for deposits of over one year, the sources said.
“The banks usually play ball on these verbal recommendations,” said one banking source, who spoke on condition of anonymity.
A Bank of Spain source said there had been no written recommendation and declined to comment on whether there had been a verbal request.
Many Spanish banks have been offering more than 3 percent to new clients on long-term deposits in a profit-sapping practice meaning lenders pay out more on deposits than they can make on advances, with variable-rate mortgages costing as little as 1.5 percent.
“This is very good news for banks as it will reduce the cost of funding with an immediate positive earnings impact,” said Francisco Riquel, analyst at N+1 broker.
N+1 estimated the move could mean a 25 percent boost on pre-provision profits for those banks with the most expensive cost of funding, like Popular, Sabadell and Bankinter.
The central bank lifted penalties on high interest offers in August after previous restrictions put in place to prevent a price war made banks funnel clients’ money out of deposits into their own short-term paper, heightening the perception of a capital flight from Spain. ($1 = 0.7667 euros) (Reporting By Sonya Dowsett; Editing by Toby Chopra)