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Name | Symbol | Market | Type |
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Barclays PLC | NYSE:BCS | NYSE | Depository Receipt |
Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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0.13 | 1.27% | 10.39 | 10.45 | 10.345 | 10.39 | 6,080,849 | 01:00:00 |
By Anna Molin
STOCKHOLM--Swedish banks are straining to cope with the nation's exotic monetary policy, made of ever-lower negative interest rates.
Second-quarter earnings reports by three large Swedish banks this week showed the lenders have succeeded in improving margins on loans but continued to struggle with deposits.
Skandinaviska Enskilda Banken AB and Nordea Bank AB said net interest income fell 6% and 4%, respectively, both partly blaming the negative rate environment. Swedbank AB's net interest income rose 3% on increased lending volumes and higher margins on mortgage loans, but the bank also said negative rates are hurting.
Logically, in the upside-down environment of negative interest rates, instead of paying interest on deposits, banks would charge customers to hold their money.
Swedish lenders are cautiously applying the rationale to large corporate and institutional clients, billing them for money they leave at the bank, but are reluctant to take their household customers into negative territory.
"They would not understand what's going on," says Christian Clausen, chief executive of Nordea Bank AB, Scandinavia's biggest lender.
Sweden has been living in an unorthodox monetary landscape since February, when the country's central bank, known as Riksbank, emulated Denmark and Switzerland in slashing its main policy rate below zero. The goal is to prevent the Swedish krona from gaining value against the euro, which has been losing ground since the European Central Bank launched a massive stimulus program. A stronger krona would inevitably hit exports.
Although the Swedish economy is in good health, the central bank tested new lows earlier this month, bringing its leading rate to minus 0.35%.
For banks, the new world of negative rates poses a series of headaches.
Besides redrawing legal contracts and tweaking computer systems unfit to handle the situation, the banks are now forced to pay the central bank, at a rate of 0.45%, when they park their cash there overnight.
For Sweden's four biggest banks, this overnight storage cost is expected to exceed 5 billion Swedish kronor this year, or nearly $600 million, according to a tally of forecast compiled by The Wall Street Journal.
None of the banks said they plan on passing that cost onto their retail customers amid fears that making them pay would damage hard-earned relationships.
"No one wants to be the first to start charging for deposits," Keefe, Bruyette & Woods analyst Karl Morris said. "They would lose all of their deposits so they can't change that, it's just something they have to bear."
Introducing negative rates on deposit accounts would be a logistical nightmare for bank clerks, involving many complicated conversations with customers and taking up a lot of time, said Barclays analyst Christoffer Rosquist. "The banks have a focus on promoting certain products and negative rates could become an unhelpful distraction," he said.
Instead, banks said they are trying to get a higher share of the customer's total business, thereby compensating for what they lose on deposits by selling more products such as stock market funds and fixed income investments.
The lenders said they also lowered mortgage rates less than the main reference rate in the second quarter, thus improving margins on loans to households and compensating for some of the pressure on deposits.
Swedish banks, however, may have to consider sharing the news about negative rates with their retail customers, said Andreas Håkansson, an analyst at Exane BNP Paribas.
"If rates were to drop even further, I think the banks need to look at it but I think that's at least 50 basis points away," he said.
Write to Anna Molin at anna.molin@wsj.com
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