Santander, Montepio and Caixa: major banks begin to raise interest on deposits and leave competitors on alert. The risk of losing clients and the threat of certificates explain the change in behavior. Santander Totta fired the starting shot, Montepio followed, and now it's Caixa Geral de Depósitos (CGD): after a period of enormous resistance, the big banks are in a race to raise the interest rates on time deposits. What explains this sudden change in behavior? The risk of losing customers and the threat of savings certificates help justify the change in behavior of the major Portuguese financial institutions, according to experts consulted by ECO. Despite being flooded with liquidity, banks need deposits to feed their business, and now nobody wants to be left behind. "Banks need deposits for their business," economist and ISEG professor João Duque told the ECO. But if they already needed them before, why did they delay in raising interest rates? "Economic agents always take some time to react. And at some point, banks would have to start raising deposit rates," he explains. For Fernando Castro e Solla, former banking director and partner at Baluarte Wealth Advisors, the rise in interest rates on deposits was an "inevitability" and "a first step" in the face of the normalization of interest rates by the European Central Bank (ECB). He explains that this delay also had to do with "the gradual recovery of the financial margin" of banks: the rise in interest rates is beginning to be reflected to a greater extent in their loan portfolios and revenues, giving room to start raising interest on deposits. This point was also underlined by João Duque: "They are with more comfortable results". Portuguese banks had long been under pressure to raise interest on deposits. Because of the escalating inflation, since July the ECB has been continuously raising the Euro Zone's key rates. These higher rates are then transmitted to the economy, namely in the form of more expensive loans and also deposits with better returns, in an effort by the central bank to reduce consumption and encourage savings and thus try to put some brake on rising prices. What was observed here did not follow exactly this line: while credit interest rates (including on homes) skyrocketed on the back of the Euribor, deposit rates found resistance especially in the big banks, due to the abundant liquidity situation and more. A situation that even led the governor of the Bank of Portugal, Mário Centeno, to pull the ears of the sector on several occasions. This scenario was reversed last week and the announcements will certainly not stop there. Last Thursday, Santander Totta launched five new term deposits with remunerations up to 2%, with Banco Montepio following suit the next day with a 24-month deposit with a 2% rate. Now it is Caixa, which has just put on the market a one-year deposit with a rate that can go up to 2.1%, according to Jornal de Negócios (paid access). By the weight that the public bank has in the market, was the signal that was missing for the competition "change of life". In the space of a few days, the subject of interest on deposits went from "when will the banks start to rise" to "who is going to be left behind". João Duque anticipates a "race" by the competition not to lose clients, but admits that "the first ones to move may have some advantage" over those who have not yet improved their depositors' conditions. Banco Santander Portugal, of Pedro Castro e Almeida, gave the starting shot in the rise of interest rates among the big players. TIAGO PETINGA/LUSA "Tying up" the clients Although each has its own funding structure, banks rely heavily on household deposits - which represent a fairly stable funding base - to extend credit. "If the economy grows a little bit, banks will need more deposits to continue to feed their business," João Duque points out. However, there are deposits and deposits, the economist points out. The banking business is very much based on this particularity: while institutions grant long-term money, deposits have shorter terms, which makes the management of any institution more demanding, on the one hand, and its activity widely supervised and regulated, on the other. With much of the savings deposited on demand, a consequence of the low interest rates of the last decade, increasing the remuneration of demand deposits also aims at another objective besides providing liquidity to the bank: "tying the client's commitment". "If the bank can have more demand deposits, that gives it a more comfortable management. On the other hand, it means that the supervisor will demand lower liquidity ratios," says João Duque. According to Bank of Portugal data, almost half of the 180 billion euros deposited in banks are demand deposits. Saving Certificates cause "damage In the middle of all this, it is impossible not to point out the role of the State in this forcing on banks, namely through the Saving Certificates that are capturing a flow of savings from families and "stealing" deposits, as recently admitted the CEO of Santander Totta - the first, by the way, to improve the remuneration of its deposits to stop the outflow of savings that was already occurring. Like bank deposits, certificates are a very safe savings instrument, but unlike the former, they have quickly followed the rise in market rates and are offering attractive returns above 3%. They quickly became a product of choice for the Portuguese, with another seven billion invested by 2022. "Savers are increasingly well informed about the alternatives. If the banks didn't position themselves, they would lose market share in national savings," says Fernando Castro e Solla. João Duque says that Saving Certificates have already started to cause "some damage" that banks are now trying to contain. "If people move their savings, banks may become unbalanced and show difficulties in liquidity stress tests," he points out. At Totta, according to Pedro Castro e Almeida, the outflow of deposits last year had two destinations: for mortgage repayment and for investment in Savings Certificates. Feeling the threat, BPI's president announced that he is preparing to raise interest on deposits because he doesn't want his clients to flee to Saving Certificates and even barbed about the high remuneration that the State offers in this product: "It wouldn't be necessary for the State to pay so much, but I understand the incentive to save", said João Pedro Oliveira e Costa. Alberto Teixeira