Erste Bank CEO: 90% of our region can't make money
Negative deposit rates are hurting savers' ability to make money, Erste Bank CEO Andreas Treichl told CNBC ahead of the European Central Bank Meeting in Vienna on Thursday, adding that the lack of investment options in the bank's key markets needed to be addressed.
"Negative deposit rates are bad for the clients, they're not necessarily so bad for the banks because we have two sides of the balance sheet so it's really bad for the mass market clients," Treichl said. "Actually it's bad for about 90 percent of the population in our region who have no means to invest in anything else but bank deposits," said Treichl.
A negative rate effectively charges lenders who park cash at the central bank and many analysts have expressed concern that this could dent revenues at organizations that are still recovering from the euro zone sovereign debt crisis.
"It's bad for us on the deposit side, but our risk costs have shrunk tremendously and partially they have shrunk due to the low interest rates," Treichl said.
He added that Europe needed to grow its capital markets, and had much too little capital market activity.
There was "no capital market" in the region thebank operates in - Austria, the Czech Republic, Slovakia, Romania, Hungary, Croatia and Serbia - which was hampering wealth creation. "Because people can't earn anything but their income, so it's bad," he said.
According to Treichl, the ECB is pushing bank CEOs to "tell your clients to invest in fancy paper." However, "there is no fancy paper and they don't want to invest in fancy paper- they stick with deposits or life insurance or pension contracts but they make no money for banks."
But making access to finance through capital markets more straightforward will take time, he said.
"You've got to change everything. You can't do that from one day to the other," he said. While he was in favor of expanding capital markets, he pointed out that "you need 30-50 years to change it. What until then? You want to have real poverty until then?"
The European Commission has outlined plans to strengthen capital markets, a move it says will provide new sources of funding for business, help increase options for savers and make the economy more resilient.
Europe's capital markets are still relatively underdeveloped and fragmented, the EU executive said in September. It pointed out that the European economy is as big as the American one, but Europe's equity markets are less than half the size, its debt markets less than a third.
Treichl's comments come as the European Central Bank (ECB) meets on Thursday. It is expected to hold rates steady, including the deposit rate at -0.4 percent .
The ECB held the main refinancing interest rate at 0.0 percent last month and its monthly asset purchases at 80 billion euros ($89 billion).