Bank of England: Legacy Banking Arrangements Costing UK Businesses
The SWIFT network that drives the global banking system is 50 years old. It’s no surprise then that many organisations have banking arrangements that are not fit for purpose. Legacy core banking systems deployed by the big banks are adding to the problem.
Most companies and organisations have bank account structures and configurations that are not optimised. This becomes very clear when you look at the most recent Bank of England data. Billions of bank funds are yielding very poor interest returns.
It is not in the banks’ interest to invest in their technology as doing so would lead to better banking structures for their customers and lower bank profits. Maybe regulators are too focussed on compliance issue and overlooking inflated banking costs for their customers.
The profits of the big 4 banks (Barclays, HSBC, Lloyds and Natwest) are up 79% so far this year compared to the same period in 2022. Their actual profits before tax, year to date, were £79bn up from £23bn for the first 9 months of 2022.
Record Bank Profits https://www.youtube.com/watch?v=hJQXiCBrUP8
In summary, banks are profiting from interest rate rises at the expense of their customers. Businesses and other organisations are unwittingly contributing to the record profits by not having optimised banking arrangements.
Rising Interest Rates https://www.youtube.com/watch?v=wF7ma0x4HAM
There continues to be a disparity between businesses with optimised banking arrangements and those with sub-optimised legacy banking structures. The latter is unwittingly subsidising the former and feeding enormous bank profits.
The latest statistical release from the Bank of England published in October 2023 shows a slow improvement in the UK banks term deposit rates for businesses but overnight rates lag the Bank of England base rate increases.
The headlines show an increase in the effective rate for sight deposits from 2.49% in August to 2.60% in September and an increase in the effective rate for time deposits from 4.48% in August to 4.59% in September.
Interestingly the Bank of England does not report separately the effective rate for current accounts. In Bankhawk’s experience operating cash (though more valuable to banks than term deposits) in particular attracts very poor returns.
Companies and organisations can typically achieve a 10x return over 5 years by optimising their banking arrangements with Bankhawk.
PNFCs deposits and loans
A PNFC is a private non-financial corporation.
Effective interest rates for: PNFC’s on stock outstanding of deposits and loans
1. The effective rate for sight deposits increased by 0.11% from 2.49% in August to 2.60% in September.
2. The effective rate for time deposits increased by 0.11% from 4.48% in August to 4.59% in September.
3. The effective rate for loans increased by 0.10% from 6.71% in August to 6.81% in September
Effective interest rates for: PNFC’s on new deposits and loans
1. The effective rate for time deposits increased by 0.03% from 4.75% in August to 4.78% in September.
2. The effective rate for loans decreased by 0.34 % from 6.97% in August to 6.63% in September.
Table: Effective Interest Rates paid/received on PNFC balances by UK MFI’s (excluding Central Bank)
Per cent – Not seasonally adjusted
Source: Bank of England – Statistics – Published on 30 Oct 2023