DBRS Morningstar: Higher Liquidity Drives Increase in Deposits at European Banks

DBRS Morningstar has released a commentary discussing the growth in European banks’ customer deposits in H1 2020. The commentary discusses what drove the higher liquidity and how the level of the increase in deposits from customers has differed significantly by country and by bank in Europe.

Key Highlights include:

• The weighted average growth in customer deposits was approximately 8% in H1 2020 based on data from central banks, relative to loan growth of 3%. The highest growth in deposits was seen in some Nordic countries, France and the UK.

• The increase in customer deposits has reflected the short-term consequences of the economic lockdowns imposed in many European countries and triggering forced as well as precautionary savings, while many corporates have drawn down credit lines and placing the funds on deposit in anticipation of future liquidity needs.

• This higher level of deposits has an impact on banks' funding mix. More wholesale funded banks will benefit most from a higher levels of deposits - to the extent they outgrow lending – as this will reduce the need for debt issuance in the market .

“Higher liquidity has led to higher levels of deposits at European banks. Given further COVID-related restrictions are already being introduced in many European countries, the current trend appears likely to continue. We expect businesses to still make use of the support provided by governments, leading to ongoing high levels of borrowings and deposits. Meanwhile, households might still try to maintain accumulated savings, where possible, given the uncertain environment.” said Vitaline Yeterian, Senior Vice President