Deposits at large European banks climb in Q1 as rate cuts loom

Europe's biggest banks saw an increase in deposits in the first three months of the year as the region's major central banks are likely to lower rates in the coming months.

Seventeen of the 27 largest banks by assets in the region enjoyed quarter-over-quarter deposit growth, according to S&P Global Market Intelligence data. Sweden's Skandinaviska Enskilda Banken AB (publ) topped the list and was the only lender to book a double-digit increase.

SEB is joined at the top by Nordic peers DNB Bank ASA and Svenska Handelsbanken AB (publ) and Spain-based Banco Bilbao Vizcaya Argentaria SA, which all booked deposit growth of more than 5% in the quarter. Dutch banks ING Groep NV and ABN Amro Bank NV recorded deposit growth of 3.7% and 2.7%, respectively.

– Compare banks using the Peer Analysis template on S&P Capital IQ Pro. – Access more information on Barclays' balance sheet on S&P Capital IQ – Read more about UK banks 2024 margin outlook

With central bank rates at historic highs, clients have parked more cash at banks to take advantage of high rates. The European Central Bank and the Bank of England have been projected to cut rates in 2024 but stubborn inflation has delayed monetary policy easing to a little later in the year.

The ECB is widely expected to make an initial cut in June. The BoE, meanwhile, is expected to do so a little later, with Governor Andrew Bailey saying in early April that the regulator was "not yet at a point" for easing.

Deposits backed by guarantee schemes in the bloc increased 1.7% to €8.5 trillion from 2022 to 2023, according to the European Banking Authority. Funds to protect these deposits in the event of bank failures also swelled nearly 15% to €73 billion. The increase comes as deposit guarantee schemes meet the minimum target level of 0.8% of covered deposits by July 2024, the regulator said.

French banks continue to experience deposit growth, with total deposits in monetary financial institutions in the country swelling to €6.85 trillion in March from €6.76 trillion a year before. In other European regions, deposits declined year over year.

As the cost of borrowing remains high, loan demand also remains subdued in the region. Loan demand from firms declined substantially in the first quarter despite banks earlier expecting a recovery, according to the ECB's latest bank lending survey.

Credit standards were broadly unchanged overall, the regulator found, although there was some easing in credit standards for mortgages. For consumer credit, standards further tightened and rejection rates continued to increase.

Nordic banks had the highest loan-to-deposit ratios in the continent, consistent with the fourth quarter of 2023. Handelsbanken, Nordea Bank Abp and Danske Bank A/S all held ratios north of 150%, while DNB's was 132.05%. Other banks with loan-to-deposit ratios of more than 100% include Italy-based Intesa Sanpaolo SpA, Spain's Banco Santander SA and France-based Groupe BPCE.

In April, lending to nonfinancial corporates declined compared to the previous month, said Bert Colijn, senior economist for the eurozone at Dutch bank ING. Corporate borrowing was stable but below the historical average for growth, Colijn said in a note.

"A slight tick down in corporate borrowing, along with household borrowing continuing to show sluggish growth in April, all shows that the monetary environment in the eurozone continues to be restrictive," Colijn said.