Royal Bank of Scotland may set deposit charges

Royal Bank of Scotland — which is owned by the UK — has told more than a million business customers that it may have to impose charges on deposits, which would make it the first British bank to introduce negative interest rates.

The Bank of England is expected to cut interest rates to a record low next week, prompting RBS to write to about 1.3m business customers this month warning that they may have to pay the bank to look after their money if the base rate slips below zero.

“Global interest rates remain at very low levels and in some markets are currently negative,” said RBS in one of the letters. “Dependent on future market conditions, this could result in us charging interest on credit balances.”

An RBS spokesman said the bank had no plans to impose such charges, but could take action if the base rate enters negative territory.

The Bank of England is expected to deliver extra stimulus to the economy next week by cutting the base rate from 0.5% to cushion the expected blow from last month’s referendum vote to take Britain out of the EU.

The central bank surprised markets in July by holding back from making its first rate cut since 2009, but minutes of the Monetary Policy Committee’s meeting showed that most policymakers expected to back an unspecified package of measures to boost the economy in August.

A source at RBS said the bank had written to customers to alter the terms and conditions of their contracts to avoid having to pay borrowers interest if rates turn negative.

Six of the world’s central banks have introduced negative interest rates, most notably the Bank of Japan and the ECB. Most UK-focused banks, including RBS and Lloyds Banking Group, are already facing pressure on margins and could be enticed to deepen cost cuts, as interest rates languish for longer than expected.

“All signals say yes, we will get a rate cut, and that is a negative for revenue margins,” said Gary Greenwood at Shore Capital Group. “I wouldn’t be surprised to see more announcements about general cost cutting in terms of headcount in the future.”

Rebecca Harding, chief economic adviser at the British Bankers’ Association lobby group, has urged the Bank of England not to cut rates, saying there’s little evidence lower rates have led to higher lending.

“Lower rates are unlikely, substantially, to increase lending. The immediate effect on the economy is also likely to be limited, as a result,” said Ms Harding.


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