NEGATIVE RATES: NatWest prepares to make business customers pay to hold cash

NatWest warned its business customers that it may have to charge to accept their deposits if “future market conditions” for interest rates don’t improve.

This is huge. While banks like Santander already make some customers pay to hold their money, this is a conscious business decision meant to bring in a regular stream of revenue. NatWest is saying it may be forced to introduce these measures because of the global market environment.

NatWest, which is owned by Royal Bank of Scotland, sent a letter to just under 1.3 million business and commercial customers of the bank, according to a report on the BBC News website.

“Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances,” the Guardian cites the letter as saying.

The bank said it had no plans to put the balances of personal account holders on negative rates.

Since the 2008 global financial crisis, central banks have cut key interest rates more than 600 times in an attempt to stimulate economic growth and inflation and haven’t stopped when they hit zero.

Earlier this year Mario Draghi, chairman of the European Central Bank, pushed the deposit rate — the rate at which lenders have to pay to keep money at the ECB — down to minus 0.4% in an effort to boost inflation to the 2% target.

Britain’s interest rates have been at a historic low of 0.5% since March 2009 and, with the economic shock of Brexit, the Bank of England could cut rates further.

Negative rates are bad for banks in that it hurts their so-called net interest margin. This is basically meant to measure how much money the bank is making from its investments against the amount it pays out in interest to customers. Obviously, a bank wants to make more than it pays out, but negative interest rates make that very difficult as investment products have wafer thin returns.

While the banks are dealing with negative rates on a lot of their assets, they still haven’t passed that cost on to depositors. This adds to their costs of doing business, which are already inflated by high salaries and pay, increasing expenditure on technology and higher compliance and regulatory costs.

This has led analysts at Citi last month to call negative interest rates a “seeping poison” for the business models of many of the world’s most important financial institutions, which could affect their long-term viability.

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