Sweden’s banks caught in cash burn as deposits swell to record

by |

In the back-to-front world of negative interest rates, Swedish banks are grappling with yet another odd development.

Deposits – coveted as stable funding during normal economic cycles – are growing at an uncomfortable pace for Sweden’s four biggest banks: Swedbank, Handelsbanken, SEB and Nordea. The lenders pay to place money with the central bank, which has had a negative policy rate since February, but aren’t passing on that cost to retail customers for fear of losing them.

“The banks really just don’t want more deposits,” said Karl Morris, an analyst at Keefe, Bruyette & Woods in London.

After dipping briefly in March, deposits at Sweden’s banks have risen every month, growing 9.4 percent to a record 1.48 trillion kronor ($173 billion) in November, the latest data from Statistics Sweden and state lender SBAB show. While Swedish deposit accounts pay virtually nothing, these days that’s still better than the equity market. Benchmark Swedish stocks have plunged more than 20 percent since the end of February.

At SEB, storing those deposits is costing more than 1.2 billion kronor a year, according to Anna Helsen, a spokeswoman at the Stockholm-based lender. “We will, as long as possible, avoid charging private clients for savings,” she said. Handelsbanken estimates negative central bank rates cost it 1.42 billion kronor in the first nine months of 2015, said spokesman Johan Wallqvist.

And given the continued market turmoil, Swedes are unlikely to ditch their deposits for riskier investments. There is “significant uncertainty and caution among many households,” said Tor Borg, chief economist at SBAB.

Banks may try to cover their costs by adding fees, according to Borg. They’re also trying to offload excess liquidity via the money market. Last month, the banks were “falling over themselves to get rid of deposits,” driving the one-week money-market rate down at one point to about minus 1.8 percent, Morris said.

Given the latest disruptions to the stock market, there’s little point in predicting cash will start flowing out of deposits and into equities any time soon. At Swedbank, which sits on Sweden’s biggest pile of household deposits, negative rates are costing “several hundred million kronor” every quarter, said spokesman Claes Warren.

“Savings in the bank are, to a large extent, an alternative to saving in stocks,” he said. “As we all know, zero is still more than minus.”