Spain’s banks face slower rate increases for deposits as savings costs stay tame
Spanish banks have delayed passing rising rates to customers with deposits, a trend that has kept the growth of term savings accounts modest compared with other periods. The rise in official ECB rates has been acknowledged, yet the banking sector has shown the smallest increases in these products within the euro area. In their latest annual results presentations, executives suggested this stance would continue into 2024. “We expect deposits costs to rise in Spain in 2024, but at a much slower pace than in 2023, given the ongoing decline in interest rates,” explained Leopoldo Alvear, Sabadell’s finance director, capturing the prevailing industry outlook.
“The bank tax didn’t stop Santander from delivering record results”
In Spain, the relationship between credit demand and public debt remains managed relative to the euro area. Banks report that subdued credit demand and ample liquidity reduce the pressure to lift wages in deposits as a funding source. “If there are no customers in a restaurant, you don’t cook. If there’s no one to lend to, you don’t attract more deposits and therefore you don’t raise prices,” observed one industry analyst. Santander’s chairwoman, Ana Botín, noted a cautious lending environment that keeps deposit growth in check.
Executives from other lenders echoed similar sentiments. Onur Genç, BBVA’s CEO, emphasized that loans currently represent a large share of deposits – roughly 87% in some cases – and, with credit growth weak, deposits are not a scarce resource. “Fees and rates align with market conditions, and the emphasis remains on stability rather than chasing higher volumes,” he added.
Forecasts of a softer path for rates
Underlying the trend is the market for Euribor and inflation dynamics. A faster-than-expected slowdown in euro-area inflation last year, paired with economy weakness, has led investors to anticipate continued rate cuts from the ECB. The possibility of earlier and deeper reductions in the price of money means banks now project a slower rise in the cost of deposits than anticipated a few quarters ago. This environment supports the view that deposit costs will remain relatively contained as policy rates ease gradually, according to market analyses cited by industry executives. (Citation: European Central Bank communications, 2024).
Household savings allocate more to deposits despite tepid returns
Households are not abandoning deposits, but the composition of savings is evolving. Projections suggest rates could trend lower once the ECB confirms a new cycle of rate reductions. CaixaBank’s CEO Gonzalo Gortázar remarked that rates are not trending upward and that policy aligns with market conditions, with banks adjusting both deposits and loans in line with the broader cycle. The prevailing stance is to connect pricing to the macro environment rather than pursue aggressive deposit growth, reflecting cautious optimism about consumer behavior.
No escalation in competition yet
Unlike prior episodes, there has not been a rush of high-stakes deposit offers designed to lure customers away from rivals. CaixaBank’s finance director Javier Pano acknowledged that while the Spanish system feels comfortable, there is no single institution pushing disruptive plays that would compel others to respond with sharp deposit incentives. The overall tone in the sector remains steady rather than combative, with a focus on sustainable funding rather than short-term gains. (Citation: CaixaBank annual report, 2023).
Mortgage prepayments and the Euribor dynamic
Looking ahead, banks anticipate only a modest uptick in costs as deposit plans adapt to exchange-rate movements and policy shifts. A significant share of household funds sits in accounts that yield minimal interest today, with average returns around 0.15% for many households. Historically, savings were distributed more evenly between accounts and deposits during prior rate-hike cycles, but current dynamics suggest a smaller shift in total funds even if new term deposits rise. The emphasis remains on maintaining balance while deposits and loans respond to market conditions.
A restrained rise in new term deposits
Since the ECB began tightening policy in December 2021, the monthly average rate for new Spanish term deposits has risen from 0.06% to about 2.57% since last December. Over the same period, the year-long Euribor moved from negative territory to higher levels, and the ECB’s rate decisions influenced the profitability of funding. The current environment has led to a much smaller increase in new deposits in Spain compared with the Euribor trajectory and the ECB reference rate. Meanwhile, the average interest rate on new family deposits in the eurozone climbed significantly, reflecting a broader shift toward better returns on savings while still facing a relatively high cost of funds for banks. As a result, overall deposit balances show limited growth relative to past episodes when rate cycles were more volatile. (Citation: ECB statistical releases, 2024).