What is leading European households and companies to increase their deposits?

family deposits TCFamilies and companies debt was reduced by 5.1 points to 150% of GDP
Spanish Banking Association | According to the ECB, Eurozone deposits grew at 5% in March, the fastest recent rate. The growth rates for household and company deposits coincide at 5.7%. The deposits of public authorities grew above 11% in March.

What is leading European households and companies to increase their deposits? The greatest increase centres especially on demand accounts, with increases of 8.8% for households and 7.5% for companies. In the ever difficult balance between income and risk, it is the latter which weighs more at the moment. Although other factors must also be considered.

The confidence and security offered by credit entities are undoubtedly an important factor, especially if we consider the recent instability observed in financial markets. Profitability should not be ignored, given that we are experiencing an almost unreal scenario of negative interest rates. European banks have made an effort to not pass on, in general, the negative interest rate which the ECB in turn charges for their deposits in the central bank.

Any investment strategy must evaluate four questions:
1. Aversion to risk
2. Liquidity needs
3. Time frame
4. Returns target

This leads to taking prudent and reasonable decisions, and always with the best professional advice if possible.

Perhaps the first issue on this list is most important in the decisions that economic agents are taking. But if so, it is difficult to understand why it is not reflected in financial markets, with almost generalised rises in the process of financial assets.

The financial repression with negative official interest rates should also be considered. It seems reasonable to consider that the different exceptional measure taken by monetary authorities like the purchase of assets in the market, which have favoured a fall in interest rates, have also impacted households and companies´ conservative divestment strategies. The worrying thing is if this has led to an undesired long and medium term decline in confidence.

In Spain, household deposits grew 5.5% yoy in March, but company deposits grew over 7.6%. The data released this week confirm the important weight of cash and deposits among household financial assets. And that the model appears to be replicating itself at European level.

*Photo by mrhayata on Foter.com / CC BY-SA







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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.