Guillaume Meyer: Has the increase in interest margins been at the expense of small customers?
Sergio Vicente: To a certain extent, yes, because the banks have raised the rates charged to borrowers more than those offered to depositors. And depositors are on average smaller than borrowers.
According to the banks, this increase is essentially linked to their investments with central banks or on the interbank market.
The margin comes from investments, but also from loans. I would be surprised if banks simply took the money from deposits and stored it at the central bank. Fortunately, lending is still more profitable than investing cash.
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Could banks make do with a lower interest margin?
In theory, yes... but this is a business! If people buy your service at a higher price, you will sell it to them at that price. Also, the rate on loans reacts more strongly than the rate on deposits to movements in key rates.
Do bank customers have any reason to complain?
Not really: they are free to go to another bank. That said, it's true that deposits don't necessarily earn better rates elsewhere - perhaps because it's not so easy to change banks: you have to transfer all your paperwork, and so on.
By international comparison, are Luxembourg banks particularly 'greedy' in terms of margins?
I don't think their margins are particularly high. Lending rates are very similar in the eurozone countries. And deposit rates are even a little higher in Luxembourg than elsewhere. In Spain, for example, interest on deposits remains close to zero.
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How do you explain this?
My hypothesis is that Luxembourg has a 'sophisticated' clientele, with a significant proportion of young people and foreigners. Young people are less captive to one institution, more sensitive to online banking solutions... New arrivals are - by definition - not attached to a local bank. And for cross-border commuters, Luxembourg banks are in competition with their French, German and Belgian counterparts. The market is therefore characterised by a degree of competition.
Should the banks' extraordinary profits be taxed?
I'm not sure. Investors are very fickle: if you tax an industry, they will probably put their money elsewhere. If the government's objective is to increase its tax revenues, it would seem more logical to tax all companies more. But that would make them less competitive on a global scale.
Are these extraordinary profits affecting public confidence in the banks?
Obviously. But it is not justified. Retail banking is no more profitable than the car industry, for example. The profits made are not that spectacular.
Chess player
An expert in banking theory, Sergio Vicente has been assistant professor of finance at the University of Luxembourg since 2020. The 47-year-old Spaniard enjoys cycling, chess and the guitar.
This article was written for the print edition of Paperjam magazine, published on 9 July. Read the original French-language version of this interview .
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