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Get ready for interest rates to stay low for a longer time, SocGen says

Key Points
  • Interest rates that are expected to stay low for a longer time will compress lending profitability at banks, said Philippe Heim, deputy CEO of Societe Generale.
  • Europe and many other economies globally are expected to keep monetary policy easy.
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Global GDP growth will slow down progressively, says SocGen deputy CEO

Banks must be prepared for interest rates to remain low for a longer time — which will squeeze profitability for lenders, deputy chief executive of Societe Generale said on Thursday.

Low interest rates have been one of the biggest challenges for lenders globally because they limit the amount banks can earn on loans.

Global economies from Europe to the U.S. to Asia are widely expected to keep monetary policy easy: The European Central Bank signaled it would keep rates low at least through the first half of 2020, while the U.S. Federal Reserve and several central banks in Asia Pacific eased policies in the past few months.

"As a continuation of this dovish monetary policy ... mechanically, this will put pressure above the net interest margin, above of the profits that we make from deposits," Philippe Heim, SocGen's deputy CEO, told CNBC's Tanvir Gill at the Eastern Economic Forum in Vladivostok, Russia.

The low — and in some countries, negative — interest rate environment has led to the 10-year sovereign bonds in Belgium, Germany, France, Japan and others trading with a negative rate. Overall, there are around $16 trillion of negative-yielding debt instruments around the world.

Some experts have warned that ultra-low and negative interest rates could encourage excessive borrowing, which may be bad for the economy.

U.S. Treasury yields are still in positive territory, but former Fed chairman Alan Greenspan warned that it's "only a matter of time" before negative interest rates reaches America.