How concerning is it that €15 billion in Dutch savings is held abroad?

Currently, Dutch citizens have €15 billion in savings held in foreign European bank accounts, a figure that has doubled in the past two years. Does this outflow of money hurt Dutch banks? And what else can be said about this "figure of the week"? We asked Charles Kalshoven, macroeconomist and expert strategist at APG.

Despite the doubling to €15 billion, it remains a modest percentage of the total savings Dutch citizens hold in banks: less than 2.5%. The total balance in savings and current accounts of all Dutch citizens is €600 billion. One-sixth of that is in current accounts. Kalshoven explains: "The Netherlands has about 14 million adults. This means the average Dutch adult has around €7,000 in a current account, money on which they earn no interest. It seems that earning high savings interest isn’t such a high priority for the average Dutch person."

Oligopoly

In the Netherlands, the vast majority of people have an account with one of the three major banks: ING, Rabobank, and ABN AMRO. "This is effectively an oligopoly. These players are so large that they closely monitor each other. If Bank A tries to attract customers by offering higher interest rates, the other two will soon follow. The result is that the amount of additional savings attracted is negligible, but the cost of the savings for the bank becomes higher. Such an oligopoly can depress savings interest rates simply through rational economic behavior. There’s no need for explicit agreements between them. In fact, price-fixing agreements are prohibited."

The result is that the interest margin—the difference between the interest a bank offers on, for example, a savings account, and the interest it charges on, say, a mortgage—remains stable. "The oligopoly ensures that interest rates here remain relatively low. Apparently, banks don't need the money that Dutch citizens are now placing with other banks in the Eurozone for their lending activities."

Opportunities

For Dutch banks, this €15 billion is little more than a drop in the ocean. "If this amount were to increase significantly, the banks here would likely be forced to raise their savings interest rates. As mentioned, this would reduce their interest margins and profits, but it wouldn't necessarily be a problem. Their profits don’t only come from interest income, though it is the largest component, but also from payment services and investment commissions."

Kalshoven also believes that a significant increase in the export of savings could be an indication that we are moving toward a more European banking landscape, which could present opportunities for Dutch banks. "A European banking market could enhance competition in the Dutch market, but also create opportunities abroad. Dutch banks might be able to make significant gains in the fragmented German banking market. More European-level banking operations would be a positive step for the EU’s internal market."

Pain

For now, however, many Dutch citizens prefer to keep their banking close to home. According to Kalshoven, this is partly due to the scandal surrounding the Icelandic bank Icesave. In the early 2000s, it enticed Dutch savers to open accounts by offering higher interest rates than Dutch banks. However, during the 2008 financial crisis, Icesave could no longer meet its obligations and collapsed. As a result, some 140,000 Dutch citizens were at risk of losing their money, though the deposit guarantee scheme eventually mitigated the worst of the damage. "As a result of this affair, people remain cautious about depositing their money with a foreign bank or fintech institution. Trust in the Dutch banking sector still outweighs the lure of higher savings rates. And the fact that €15 billion is placed with their foreign competitors is not yet a reason for Dutch banks to raise their savings interest rates."