FRANKFURT (Reuters) – Germans are being shown the bright side of negative interest rates as some online lending platforms pay customers to borrow despite the steepest recession since World War Two.
The European Central Bank’s sub-zero rates on bank deposits have long been a source of complaint for German households, who have seen dwindling returns from their savings despite being among the most thrifty and debt-shy in Europe.
But there could be a silver lining for those in need of cash after the coronavirus pandemic shuttered many shops, businesses and factories – or those who want to avoid bank branches as they observe social distancing rules.
Price-comparison websites Smava and Check 24 are marketing two-year loans at an annual interest of -0.4% – meaning borrowers would pay back less than they took out.
With each loan capped at 1,000 euros ($1,100), this is partly a gimmick by the two portals, which compensate the banks that originate the negative-rate credits.
But it also shows one way in which the ECB’s ultra-easy policy is trickling down from financial markets down to consumers – albeit only to those with strong credit scores.
“Some people need to take a loan because of financial difficulties, others are scared to go to a branch so they’d rather do it from their sofa,” Christian Nau, who runs Check 24’s financial business, told Reuters.
While financial markets crashed during outbreak, the ECB kept money cheap for banks by offering multi-year loans at negative rates and easing its collateral requirements.
It has also ramped up its long-running, multi-trillion-euro bond purchases of government bonds, which have drawn the fury of Germany’s constitutional court for damaging savers.
According to OECD data, Germans saved 11% of their disposal income last year, compared with 8% in France and just 0.37% in Britain.
But with Germans habitually using safe forms of savings, mostly linked to government debt, the surge in bond demand causes the prices to rise and their yield, or interest, to fall.
Yet these measures are also making credit sufficiently cheap for Smava and Credit24 to pay off the originating banks.
“It’s highly unlikely this would be possible if the ECB changed its policy,” Smava’s chief executive officer Alexander Artopé told Reuters.
In characteristic German fashion, the idea cropped up over beer as a group of friends bemoaned the extravagance of the ECB’s negative rates in the summer of 2017.
“We thought it was crazy but it also gave us an idea,” Artopé said.
Since then Smava lent more than 27 million euros ($29.59 million) at rates as low as minus 13% during a marketing campaign in March. Check 24 has lent to “more than 100,000” borrowers at negative rates, according to Nau.
However, consumer activists say borrowers may be paying an intangible price for their credit when they hand over information such as their income, financial situation and bank statements.
“Such data is worth gold and therefore a fairly high price for the consumer, no matter how tempting the rate offer is,” said Kay Goerner, a legal counsel at consumer advocacy group Verbraucherzentrale Sachsen.
(Additional reporting by Valentina Za in Milan and Jesus Aguado in Madrid; Editing by Alison Williams)