January 15, 2020 / 10:49 AM / 6 days ago

Euro zone banks earn more from lending despite moans over negative rates

(This January 15 story corrects time period to first three quarters from third quarter throughout)

FRANKFURT (Reuters) - Euro zone banks increased their net interest income in the first nine months of last year, despite incessant complaints that negative central bank rates are wiping out their most basic form of income, data from the European Central Bank showed on Wednesday.

The ECB cut its deposit rate to minus 0.5% in September but has long argued that banks are net beneficiaries of its super-easy policy as higher lending volumes more than offset the drag from low rates.

Banks supervised by the ECB, the biggest lenders in the 19-country currency union, had net interest income of 202.9 billion euros ($225.8 billion) in the first three quarters, up from 194.4 billion a year earlier, the highest nine-month figure since the ECB started supervision in late 2014.

Overall income also rose but banks’ combined net profit still fell 8%, as costs continued to rise and risk provisions surged, ECB data showed.

Banks in Germany, the bloc’s biggest economy, fared the worst in the period and their combined net profit was on a par with lenders from Greece, a much smaller economy that was barely saved from collapse in recent years with three European rescue packages.

German banks’ combined return on equity was 0.4%, indicating that the sector was not earning the cost of its capital, even if it was well capitalized for now.

Banks in Spain and Italy, both considered in the past to be bailout candidates, meanwhile earned returns of over 7%, among the best in the euro zone.

The combined return on equity of euro zone banks fell to 5.83% from 6.85% a year earlier, the lowest figure for the period in three years.

The ECB has also argued that weak profitability is one of the biggest risks to the euro zone’s economy and complaints about low rates distract attention from lenders’ outdated business models, which perpetuate weak earnings.

Reporting by Balazs Koranyi; Editing by Catherine Evans

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