Chief executives from the UK’s four largest lenders today hit back at accusations from MPs that they were too quick to charge customers more interest on their mortgages without offering higher rates on savings accounts.
The bank chiefs were asked why interest rates on instant savings accounts remain around one per cent while the Bank of England’s base rate has increased to over four per cent, although chair Harriet Baldwin noted “you’ve raised those rates faster since we invited you in”.
The bankers, however, retaliated that focusing on instant savings accounts was the wrong approach.
Matt Hammerstein from Barclays said he understood why they attracted attention, but instant savings accounts were an “inappropriate point to focus on”.
Barclays have “definitively passed on a base rate increase at five per cent” to its ‘rainy day’ savings account, he said.
HSBC’s Ian Stuart agreed, suggesting that instant access accounts are “gateway products into getting our customers into good savings products.”
“Our digital regular saver, which is paying 5 per cent, is encouraging people to build that savings habit,” said Dame Alison Rose, Natwest’s chief executive. Rose also pointed out that many customers did not have any savings, so offering higher interest rates would not help them in a cost of living crisis.
Charlie Nunn from Lloyds also said saving accounts were not necessarily the most important thing for offering support. “Its about targeting the customers that need support, [who] typically don’t have savings.”
The bankers clarified that increasing mortgage costs were mostly out of banks’ control.
“We don’t manage the rates relative to base rates. 81 per cent are fixed rates, that’s not driven by base rates, its driven by expectations of future base rates,” Hammerstein said. The remaining 19 per cent explicitly track base rates, he noted.
Stuart confirmed “we don’t link our fixed rate mortgages to the base rate.”
Another issue discussed in the committee was branch closures. Over the last few months all of the banks included in the committee announced large scale closures for the coming year.
The bank chiefs defended these decisions while also reaffirming their commitment to a physical presence in the UK.
Stuart said the banks were simply following customer preferences. “98 per cent of our transactions in December… were digital” Stuart noted. “We are absolutely committed to a physical footprint in the UK, but we have to scale that presence properly for the long term.”
Natwest’s Alison Rose said branches “are and continue to be a very important part of our service” but clarified that they were only “one of only many ways” that customers can bank with Natwest.
Nunn also pointed out that all the banks have been increasing their loss provisions in the face of a possible recession. Higher net interest income has helped banks to increase provisions for bad loans.
“We need to make sure we need to make sure we have financial resilience to support customers through a recession,” he said.
All the bankers said that evidence of distress in lending – either through shortfalls or falling into arrears – remained very low, but Stuart did warn that “the headwinds are ahead of us, not behind us”.
The UK’s major lenders, particularly the more domestic banks, are expected to announce bumper profits when they release results over the next couple of weeks.
Higher interest rates have contributed to much higher net interest margins. Net interest margin is the difference between what banks pay out and receive in interest payments.
The FTSE 100’s five banks – including Standard Chartered – are forecast to report pre-tax income of £37.4bn for 2022, up four per cent on 2021 and higher than the pre-financial crisis high of £35.7bn generated in 2007.