Britons are pulling more and more cash from bank accounts that don't pay enough interest. It's beginning to hit the UK's biggest lenders where it hurts.
Retail customers at Barclays, Lloyds Banking Group and NatWest Group have moved a combined £25 billion ($30.3 billion) out of current accounts since the beginning of the year. The drop contributed to
Shareholders will now be scrutinizing figures from HSBC Holdings on Monday, the final major listed U.K. bank to report third-quarter results.
To be sure, overall deposit bases are still growing, but customers are deserting the non-interest bearing accounts that offer the industry's cheapest source of financing. Competing to offer better rates on savings products helps retain customers but drives up lenders' costs.
Britons have started to shop around for higher yields during the Bank of England's quickest
What's more, a decline in non-interest bearing deposits can reduce the benefits of the structural hedge, a significant source of income for banks in recent years. In this balance sheet exercise, large U.K. banks hedge these accounts using swap contracts.
"A reduction in non-interest bearing deposits means that banks need to reduce the notionals on their structural hedges, which is a headwind to future net interest income," RBC analyst Benjamin Toms said.
"Given the trends we are seeing in retail deposits, we expect the notional balance to continue to reduce more or less in line with lower hedgeable deposits," Barclays Finance Director Anna Cross told analysts this week. This effect should be outweighed by higher reinvestment yields as swaps mature over the coming years, Cross added.
The overall movement of deposits from low- to high-interest-rate accounts is cutting U.K. banking revenue by an average of £250 million a month, Numis analyst Jonathan Pierce wrote in a
Still, as savers' search for yield eats into revenues, there could be one bright spot for the industry: The trend might make Britain's banks less prone to accusations of
