Banks aren’t benefiting from low Bank of England rates by widening interest margins to boost profits as popularly supposed.
As the fund managers at Money Moves Markets write:
The chart [below] shows estimates of the weighted-average interest rates paid on sterling deposits and charged on sterling loans vis-à-vis the UK non-bank private sector (i.e. M4 deposits and lending).
The average deposit rate has been rising gradually since early 2010, probably reflecting banks competing to attract inflows to replace maturing funding, such as borrowing enabled by the special liquidity scheme.
The average lending rate, by contrast, fell during 2010 and has stabilised in recent months despite the rising cost of deposit funds.
The lending / deposit rate spread, therefore, has fallen to a new low in data extending back to 1998.
Banks: Not ripping us off after all
Yet another thing I called wrong this year. A miracle (/fluke) I’m beating the market.
(Source: Money Moves Markets)
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Wow, great graph. The downward trend in margin is fascinating – perhaps why investment banking is so attractive to the big banks, as “traditional” banking becomes ever more competitive and less profitable?
I was surprised by the graph, too… my mindset was stuck in mid-2010, when banks still seemed to be in recovery mode.
Prior to 2007 the decline in margin was perhaps due to uncompetitive banking from the likes of Northern Rock, Halifax and Bradford and Bingley writing unprofitable loans?