Coop Bank: Customer demand would boost interest rates on demand deposits

Paavo Truu, Tarmo Ulla and Liisu Lass on ETV show
Paavo Truu, Tarmo Ulla and Liisu Lass on ETV show "Terevisiooni." Source: ERR

While in Scandinavian banks for instance, it is often possible to earn interest on money in a current account, it is not so common for this to happen in Estonia. According to Paavo Truu, CFO of Coop Bank, more competition and more demanding customers would help to improve the level of interest rates on demand deposits.

"Clients are very passive, they don't react and don't change banks," Paavo Truu, CFO and board member of Coop Pank, said on ETV's "Terevisioon" show.

Coop Bank currently pays private customers one percent interest on the money in their accounts.

However, Swedbank, the largest bank in Estonia, does not. Its nearest competitor, SEB, does not either, but has promised to start paying on demand deposits in the near future.

On Thursday, Bank of Estonia (Eesti Pank) said that the high profits made by Estonia's commercial banks have less to do with the Euribor rate and more with low interest expenses, urging banks to offer interest also on demand deposits.

"Customers can force service providers to improve their services," said Truu. "If the customer is not demanding it, then service will not improve."

Swedbank does not offer interest on its current accounts. In response to a question from presenter Liisu Lass, Tarmo Ulla, a member of Swedbank's management board, spoke about one of Swedbank's other services, where it does offer interest to its customers.

We are still seeing growth in deposits, Ulla said.

The standard interest rate on annual deposits in Estonia is now around 4.25 percent.

"Inflation is now finally at the same point, whereas before, it was consistently higher," Truu said.

"It was only a year ago that the price of money rose, before that the European Central Bank (ECB) was pushing things so that interest rates were negative, and that was of course an absurd situation. Estonian commercial banks have reacted very quickly to the change," he added.

Of course, the interest rate offered on demand deposits could also be higher. However, time will tell when that becomes the case, said Ulla.

"If inflation stays high, the ECB will still continue to raise interest rates, then deposit rates will also probably keep going up," Ulla added.


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Editor: Michael Cole

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