Brussels, September 6, 2023 – In a groundbreaking financial development, Belgium has successfully raised a historic €21.9 billion ($23.65 billion) from savers in a bond sale, aiming to challenge traditional bank deposits. This move reflects the growing popularity of government debt as discontent surges among consumers facing dwindling interest rates from traditional lenders.

The bond sale, initiated on August 24, was strategically designed to exert pressure on banks to elevate deposit rates. Notably, this marks the largest funding effort ever mobilized from households in Belgium’s history and is believed to be the largest retail bond sale in Europe, as confirmed by the country’s debt agency.

Remarkably, this amount, equivalent to approximately 5% of total Belgian deposits, outshines the €5.7 billion raised from savers during the height of the Eurozone debt crisis in 2011 and surpasses the €18 billion amassed by Italy earlier this year from individual savers.

European banks, awash with liquidity, have been reluctant to increase savings rates even as market interest rates surge, driven by central banks’ efforts to combat inflation. Consequently, households are increasingly withdrawing their funds in search of more lucrative returns. In response, government-issued bonds targeting savers have emerged as a favored alternative. This year, Italy and Portugal have also redirected significant portions of their funding programs towards households.

The overwhelming demand for these bonds sends a resounding message to the banking sector, according to Belgian Finance Minister Vincent Van Peteghem, who remarked, “Savers are giving a signal to their banks to say: we are expecting a higher return than the one that you are offering nowadays on your savings accounts. We ask at least the same respect that you have for your shareholders.”

Belgium’s one-year bond offers an interest rate of 3.3%, surpassing the typically lower rates, often hovering around 2.5%, on standard savings accounts, as reported by the aggregator website Spaargids.

However, the immense demand for these bonds led to several instances of the debt agency’s IT systems crashing during the sale. Jean Deboutte, a director at the debt agency, revealed, “At one point in time we had one subscription per second,” comparing it to the traffic volumes experienced by e-commerce giant Amazon.

Across Europe, governments are seeking ways to alleviate the financial strain on households due to rising living costs while simultaneously missing out on the benefits of increasing interest rates. Italy recently imposed a one-off tax on banks’ excess profits.

Despite the high demand for these bonds, the largest banks in Belgium have not yet raised interest rates on savings accounts. Isabelle Marchand, spokesperson for the Belgian financial sector lobby Febelfin, emphasized the need for close monitoring of the financial stability of these institutions, stating, “This will be different for every bank, but the financial stability of every bank needs to be monitored closely.”

Belgian Finance Minister Van Peteghem expressed his hope that the bigger banks would follow suit. He added, “If that’s not happening, that means that we still need to look for other tools. We can issue another bond in December.”

The one-year maturity of these bonds, shorter than Belgium’s usual retail bonds, was intentionally structured to resemble savings accounts that offer increased returns to savers who lock up their money for a year. Furthermore, the government is considering a bill, pending approval, that would reduce the withholding tax for bond buyers from 30% to 15%, making the bonds even more attractive in comparison to traditional Belgian retail bonds.

Febelfin’s Marchand welcomed the idea of tax-friendly bonds but urged fairness in their application, stating, “the same conditions should apply to all similar investment products, and therefore there should be a level playing field.”

Belgium’s debt agency noted that the significant size of the bond sale would reduce outstanding short-term debt by over €10 billion throughout 2023, cut longer-debt issuance by more than €2 billion, and bolster the country’s cash reserve by approximately €9 billion.

Photo Source: Google

6th September,2023
By: Delino Gayweh
Serrari Financial Analyst