Depositors have withdrawn €214bn from eurozone banks over the past five months, with outflows hitting a record level in February, according to data published by the European Central Bank on Monday.
The fall in eurozone bank deposits, which started a few months after the ECB began raising interest rates last summer, marks a reversal from the large amounts of money that had been pouring into banks — particularly since the pandemic.
The recent outflows indicate banks were finding it harder to attract and retain depositors even before this month’s turmoil in the banking sector, which caused the collapse of three US lenders and drove Credit Suisse into the arms of UBS.
In February, the decline accelerated as depositors cut their holdings at eurozone banks by €71.4bn, which was the biggest reduction since records began in 1997. Household deposits fell by €20.6bn, the largest fall since that data started to be collected in 2003.
The withdrawals in the five months since October were worth 1.5 per cent of the almost €14tn that eurozone banks held for depositors and were less than the $500bn of deposits that have been pulled out of US banks in the past year.
In the UK, there have been similar outflows of deposits by corporate customers, which withdrew £20.3bn from British banks and building societies in January, a record since this data started being collected in 2009, according to the latest Bank of England figures. However, UK household deposits continued to grow by £3.5bn.
Banks in the eurozone have been slow to pass on higher interest rates to depositors. The ECB raised its deposit rate to 3 per cent this month, but the highest instant access rate for savers at German banks is 1.6 per cent, according to deposit broker Raisin.
This has prompted a switch from instant access accounts to longer term savings accounts offering higher rates. Overnight deposits at eurozone banks fell €140bn in February, taking the decline over the past six months to €512bn.
However, this was partially offset by an increase in deposits with an agreed maturity up to two years, which rose by €83bn in February and by €476.3bn in the past six months. Savers have also put more cash into money market funds and debt securities issued by banks.
The ECB said some of the withdrawn deposits were invested back into eurozone banks, which boosted their funding by issuing €155bn of bonds — more than two-thirds of them long-term securities — in the six months to February.
“The data show that savers continued to tie up their cash in less liquid but higher yielding forms of money,” said Jack Allen-Reynolds, an economist at research group Capital Economics.
While depositors are reducing their overall holdings at eurozone banks, Allen-Reynolds said “they invested some of that money into bonds issued by banks, so this isn’t necessarily a sign that customers were losing faith in the banking system.”
Total lending by banks to eurozone customers fell for the third consecutive month in February, taking the total three-month decline to €72bn and ending nearly five years of consistent growth.
Economists think this month’s turmoil in the banking sector is likely to make lenders more cautious, squeezing credit supply.
“We expect loan growth to continue to slow down over the short term, and start recovering at a later stage when short-term rates find stability and the economic environment improves,” banking analysts at Jefferies said in a note.
