Royal Bank of Scotland is to charge some large corporate customers for holding cash on deposit in a sign that UK lenders are starting to impose negative interest rates.
The state-backed bank has written to certain institutions in its investment banking division to warn that it will apply negative interest rates from Monday, according to a letter seen by the Financial Times.
One banker briefed on the plan said the negative rates would affect clients who trade futures and options, and therefore hold cash on deposit as collateral. He said customers were being encouraged to use bonds instead to avoid the cost.
The letter from the bank said: “As you will be aware there are a number of currencies which now attract negative overnight rates for deposits.
“To date we have been flooring deposit rates at zero per cent but we have now reached the stage where we can no longer sustain this level of floor. As a result of the continuing interest rate situation we will be implementing negative interest rates.”
The changes affect large customers who must hold collateral in sterling or euros. Banks are hit by negative rates when they pass through the European clearing houses.
The move comes weeks after Bank of England governor Mark Carney cut the bank rate to a fresh record low of 0.25 per cent.
Ulster Bank, the Irish lender that is part of RBS, already imposes negative rates on some large corporates.
Ulster Bank has products priced off Euribor, a European interbank lending rate, which turned negative last year. This charge by the bank does not apply to small businesses or personal customers.
It emerged on Friday that Bank of Ireland is to start charging large companies to hold their money on deposit later this year, making it the first domestic Irish lender to impose negative interest rates.
The bank, which is 14 per cent owned by the state, has warned large corporates and institutions that it will charge 0.1 per cent for deposits above €10m from October.
The landmark move comes after the European Central Bank started charging lenders 0.4 per cent to deposit their cash overnight.
It is understood that the negative rate will only affect a small number of customers, and that the bank does not have plans to charge individuals or small businesses.
A Bank of Ireland spokesperson said: “We keep rates under review.”
A number of other banks in Europe have started to apply negative rates to offset pressure on profits.
Low or negative interest rates squeeze banks’ margins by closing the gap between what they can charge on loans and what they must pay for deposits.
A Bavarian lender last week became the second German bank to say it would start charging to hold private customers’ deposits. German banks have come under pressure as many of them are unable to channel all their deposits into loans.
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