Swiss Negative Rates Seen Targeting Foreign Banks Seeking Safety
(Bloomberg) — Foreign banks in Switzerland will probably be more affected by the central bank’s decision today to charge interest on deposits than the country’s own lenders.
The Swiss National Bank said it will charge 0.25 percent on sight deposit account balances in excess of 20 times the minimum reserve requirements, a threshold foreign-owned banks exceed by a larger margin, data from UBS Group AG economists shows.
“Negative rates are mostly aimed at the foreign banks that choose to hold their money in Swiss francs because they think it’s safer at the moment,” Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux said. “The SNB is trying to discourage that,” he said, adding that foreign banks may pass on the costs to clients who specifically ask for their money to be held in Swiss francs.
Uncertainty in the financial markets and the worsening of the crisis in Russia have “substantially increased demand for safe investments,” SNB President Thomas Jordan said at a press conference in Zurich today. Swiss officials acted as the turmoil in Russia, along with the imminent prospect of quantitative easing from the European Central Bank, kept the franc too close to its the 1.20 per euro ceiling.
Annual Costs
HSBC Holdings Plc’s Swiss unit, is the biggest foreign bank in the country with almost 31 billion Swiss francs ($31.7 billion) in assets, according to 2013 data from the association of foreign banks. Barclays Plc and J. Safra Sarasin Holding AG are the second and third-biggest foreign banks by assets, the data show.
A spokesman for HSBC declined to comment as did a spokeswoman for J. Safra. Officials for Barclays weren’t immediately available to respond to questions on the impact on business of the SNB’s move.
Annual costs for the banking sector at the current negative rate may amount to about 50 million Swiss francs, UBS economists Dominik Studer and Bernd Aumann said in a note today.
At the end of September, the largest Swiss banks, UBS and Credit Suisse Group AG, exceeded the minimum requirement for sight deposits by 9.3 times, while cantonal banks by 16.3 times. Other lenders, including foreign institutions, had sight deposits 31.8 times the minimum reserves, they said.
Any financial company wishing to participate in the Swiss interbank clearing system, which allows cashless payments, needs to have a sight deposit account with the SNB. Sight deposits that banks held in the reserve period that ended Oct. 19 amounted to 311.9 billion francs, surpassing the requirement by 21.4 times, SNB data shows.
Swiss Banks
“The goal is not to punish the banks active in the domestic business,” said Manuel Ammann, a professor at the Swiss Institute of Banking and Finance at the University of St. Gallen. “The SNB wants to prevent deposits that exceed the current levels.”
Zuercher Kantonalbank, the biggest state-owned Swiss bank, said in a statement it will not accept liquidity from banks and other professional counterparts in the money markets and reserves the right to take other measures.
UBS said in an e-mailed statement it currently falls below the exemption threshold and has no plans to charge interest rates on the accounts of retail clients. The bank has been levying fees “to discourage interbank clients from holding excessive cash balances over the past two years,” it added.
Credit Suisse had also informed its financial institutional clients two years ago that it will start charging them on cash balances in francs above certain thresholds.
Credit Suisse said in a statement today the SNB’s decision doesn’t have “an immediate direct impact” on the bank, which doesn’t plan to introduce negative interest rates on savings accounts “for the time being.”
The negative interest rates has no immediate impact on Raiffeisen Group, according to Franz Wuerth, a spokesman for the St. Gallen-based bank.
–With assistance from Giles Broom in Geneva.
To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net; Jeffrey Vögeli in Zurich at jvogeli@bloomberg.net To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net Jon Menon
