The persistent low-interest-rate environment in Europe is making consumers conservative and risk-averse, rather than encouraging them to take on more debt, ING Groep NV CEO Ralph Hamers told analysts during a call for the Dutch bank's second-quarter earnings.
"The [quantitative easing] effect has dried up," Hamers said, adding that consumers were more likely to save than spend, and had diminishing interest in taking on more debt, despite there being "no lack of liquidity."
The current QE program is "no longer working," he said. QE is a process by which central banks buy large amounts of assets in order to inject liquidity into the market.
His comments come after the ECB announced July 25 that it was holding its deposit rate at negative 0.4%, but signaled that further rate cuts could be on the way.
Lending book growth
However ING itself recorded growth in its lending book during the first half, driven mainly by retail, according to a company presentation.
Net core lending stood at €610.3 billion at the end of the first half, an increase of €7.4 billion during the six-month period. Retail lending increased by €5.1 billion, of which €2.0 billion came from mortgage growth, while wholesale banking grew by €2.3 billion.
In response to a question about how ING planned to respond to the challenges of the ongoing low interest rates in future, Hamers said the bank was already experimenting with charging different clients slightly higher rates in some segments. For example, the bank had already increased fees for some large corporate clients.
As for the question of whether the bank would pass negative interest rates on to savers, Hamers said this was a question that ING was still figuring out, since the current monetary policy environment is "uncharted territory" for the banks.
"You have to be mindful of the role that you play in the market, mindful of the stability of your deposit base as well, and mindful of the promise that you made to your clients," he said.
Broadly speaking, ING's approach to staying profitable while low interest rates persist will involve a range of different approaches, according to Hamers.
"There is a whole menu of things you can consider," he said. "You don't want to go full-blown into one of those specifically."
Money laundering probe
Separately, ING has faced a formal investigation by Italian authorities regarding potential money laundering involving the bank's Italian business.
Hamers said that the bank had stopped onboarding new customers in Italy but continued to service existing ones.
ING did not make any provisions for fines during the second quarter, and Chief Risk Officer Steven van Rijswijk told analysts during the call that the bank was not going to give any further disclosures at this stage about its dealings with the Italian authorities.
"We do not comment on individual provisions, unless they are material and we need to disclose, which at this point in time is not the case," he said.
The bank turned a net profit of €1.44 billion during the second quarter, up 0.6% from €1.43 billion a year previously, which Hamers attributed to higher volumes and "resilient" lending margins.