Julius Baer's Singapore branch to impose negative interest rates on some deposits

Bank Julius Baer says it is imposing negative interest rates "in response to prevailing market conditions". A rate of -0.75 per cent will be levied for a cash balance of more than 500,000 Swiss francs (S$703,000).
Bank Julius Baer says it is imposing negative interest rates "in response to prevailing market conditions". A rate of -0.75 per cent will be levied for a cash balance of more than 500,000 Swiss francs (S$703,000). PHOTO: AGENCE FRANCE-PRESSE

S'pore branch to apply rates to deposits in currencies like euro, Swiss franc from June 1

The Singapore branch of Bank Julius Baer is set to impose negative interest rates on certain deposits.

The Swiss-based bank told clients last week that "in response to prevailing market conditions", it will introduce negative interest rates for cash balances in current accounts in certain currencies from June 1.

An interest rate of -0.4 per cent a year will be applied if a cash balance exceeds €100,000 (S$156,000), for instance, while a rate of -0.75 per cent will be levied for a cash balance of more than 500,000 Swiss francs (S$703,000). Other currencies affected include the Danish krone and Swedish krona.

Instead of receiving interest, someone with €150,000, for instance, would be charged $200 a year to keep their money in the bank.

Bank Julius Baer declined to comment but the client letter noted that the applied interest rates and list of currencies subject to negative interest rates could change, depending on market conditions.

Central banks worldwide have imposed negative rates - charging financial institutions a fee for holding their reserves - since the 2008 financial crisis. This dissuades banks from parking cash with the central bank. The aim is to make saving less attractive and borrowing more, with the hope that more money will be spent, hence spurring recovery.

In June 2014, the European Central Bank was the first major central bank to introduce negative interest rates, hoping banks would give more loans to businesses, weaken the euro and lift inflation. In such cases, banks are often left with the decision to pass on the charge to clients.

The Straits Times understands that Credit Suisse and DBS Bank have not imposed negative rates.

OCBC Bank introduced monthly service fees on Swiss franc and euro business accounts for its business, corporate and institutional banking customers last year.

Mr Lee Swee Siong, OCBC's cash management product head of global transaction banking, said this was due to volatility in the currency markets, "following the monetary policy development in Europe since last year". The service fees are charged only on excess funds, based on limits set by the bank.

Mr Lee noted: "Customers have the option to avoid this fee by converting and transferring their Swiss franc or European Union euro funds to a Singapore-dollar or United States-dollar business account."

Other banks approached did not comment.

Financial institutions are watching the markets for their next move.

OCBC economist Selena Ling said that, as a general rule, negative interest rates tend to drive cash into investments, whether in property or other financial instruments, rather than to sit idly in bank accounts.

She noted that Singapore clients, especially institutional or corporate depositors, may reduce their holdings in certain currencies.

Ms Ling said: "So far, the impact on market cash balances here has been limited. But some administrative fees are already being levied on excessively large balances in Nostro accounts and this could gradually impact interbank lending behaviour over time." A Nostro account is one held by a bank with a correspondent bank in another country, and in the currency of that country.

Ms Ling added: "That said, liquidity in the Singapore-dollar market remains very flush. Given the cautious business confidence and soft loans growth - which had already contracted for six straight months - there is less competition for Singapore-dollar deposits at this juncture."

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Correction note: An earlier version of the story had said someone with €150,000, for instance, would be charged $600 a year to keep their money in the bank. It should be $200 instead. The interest charged is based on amounts after a €100,000 limit.

A version of this article appeared in the print edition of The Straits Times on May 11, 2016, with the headline 'Julius Baer to impose negative interest rates'. Print Edition | Subscribe