Banks Not Ready for Negative Rates, NatWest Chairman Davies Says

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© Bloomberg. Howard Davies Photographer: Al Drago/Bloomberg

(Bloomberg) — British lenders aren’t in a position to implement negative interest rates, according to the chairman of NatWest Group Plc.

“We’re not completely ready for it,” Howard Davies said in a Bloomberg Radio interview Thursday. “There would be technical issues and many contractual issues.”

Davies said he was against the introduction of sub-zero rates, noting there was little evidence it had spurred investment in other countries. “We are really assuming interest rates are pretty well zero for any reasonable planning horizon. It could be worse than that.”

The Bank of England is seeking information from U.K. financial institutions on their ability to handle negative rates. The central bank has said it isn’t currently planning to cut interest rates below zero, but is preparing in case such a move ever becomes necessary.

Davies also warned that the ongoing Brexit talks offered little solace for the finance sector, one of the U.K.’s biggest industries.

While British banks are prepared for any outcome, it is a “suboptimal solution,” Davies said on Bloomberg Television. Without an agreement between the EU and U.K. on cross-border financial services — a process known as equivalence — some business will “drift away” from London after Brexit, he said.

Davies also said loan losses stemming from the pandemic were lagging the provisions U.K. banks made in the first half of the year. He added that governments should extend their support programs as long as lockdowns are still in place.

“All banks would say that the actual lived experience is not as bad,” he said. “Provision by the government of financial support is preventing the disasters occuring.”

©2020 Bloomberg L.P.