The increase in the Livret A rate could be costly for banks

Posted on Dec 8, 2019 2021 at 6:42

If it has not yet been acted on by the government, the probable increase in the Livret A rate could pose some concerns for the banks. “There are 50 million holders of regulated savings accounts and nearly 470 billion in assets, loose a banker. On this scale, paying more for these savings has a significant cost ”.

Since the start of 2020, the rate of return on the preferred savings product of the French has stood at 0.5%. However, given the persistent rise in inflation, it should automatically rise in February 2022, even if it will be up to the government to decide.

It is first on the Caisse des Dépôts (CDC), which manages regulated savings, that an increase in the rate will weigh. But the banks, which distribute the passbooks, must also ensure part of the return to customers.

According to estimates by the rating agency Fitch Ratings, to which “Les Echos” had access, in the event of a 25 basis point increase in the Livret A rate (to 0.75%), the annual cost for French banks would stand at 460 million euros.

And if the rate were raised to 1%, the impact for the banking sector would approach one billion euros (920 million), according to the agency. “Concretely, this represents between 0.3% and 0.6% of their net banking income,” calculates Rafael Quina, analyst in charge of French banks at Fitch.

Decision expected on February 1

In view of current inflation (2.6% in October) and short-term interbank rates – the two components of the new formula for calculating the passbook rate – this should be automatically raised to around 0, 8%.

Of course, this increase has not yet taken place. The government will have to decide before the 1er February, after receiving the recommendation from the Banque de France. But there is little doubt about the movement itself. It remains to know its extent.

“With the approach of the presidential election, it is difficult to see how the government could decide otherwise while purchasing power is one of the main areas of concern at the moment,” slips a specialist in the sector.

The livret A is the preferred savings product of the French. But its real return has been dramatically reduced since prices started to rise again. With current inflation, the real return is even negative, at -2.1%.

Questioned, the banking players kick in touch, arguing that it is impossible to know if the remuneration of the booklet will actually be revised upwards next February. The French Banking Federation (FBF) declined to comment.

“Towards a decline in GNP in 2022”

This potential increase is bad news for the banks. “In addition to the cost of the Livret A, their income may be impacted by the recurring pressure on net interest margins as well as by weaker activity compared to the impressive rebound that we experienced in 2021, in particular in activities related to capital markets ”, explains Rafael Quina.

Still, the bill could have been even higher. Indeed, out of all the collection of Livret A and Livret de développement durable (LDDS), banks must only remunerate the 40% that they keep themselves.

The remaining 60% are “centralized” at the Caisse des Dépôts (CDC), which ensures the return on this part of the deposits. In exchange, the public bank remunerates the banks for their fundraising activity, up to 0.3% of the centralized outstandings.

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