Struggling European banks see light at end of low-rates tunnel

Fri Feb 17, 2017 6:38am EST
 
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By John O'Donnell and Maya Nikolaeva

FRANKFURT/PARIS (Reuters) - Rock-bottom interest rates hurt more big European banks in 2016 than in the previous year, but the worst could soon be over with the prospect of rising borrowing costs rippling from the United States to Europe.

Low rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 debt crisis.

But the policy has been politically divisive, prompting fierce criticism from famously thrifty Germans as the returns on savings in Europe's biggest economy dwindled to nothing.

It also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them.

Last year marked a low ebb, according to a survey by Reuters of 20 large European banks conducted in mid-February.

While seven in that group saw net interest income fall during 2015, that number increased to 12 in 2016, with the average dip more than 7 percent. That was steeper than the roughly 5 percent slip on average in 2015.

Such income is the difference between interest charged on, say, a loan, and the cost of holding a deposit. It is a bellwether of earning power, closely watched by investors, and its decline bodes ill for the sector.

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FILE PHOTO:  Offices in the financial district of Canary Wharf in London, Britain, January 19, 2017.  REUTERS/Kevin Coombs/File Photo