PARIS (Reuters) – Bank of France Governor Francois Villeroy de Galhau recommended on Wednesday that the government lower the regulated interest rate on popular tax-free savings accounts, offering French banks relief from payouts that exceed those offered by European peers.
Villeroy told the Senate’s finance commission that he recommended that the interest rate on the Livret A savings accounts be set at 2.4% from Feb.1 from the current 3%.
The Finance Ministry generally follows the central bank’s recommendation for the interest rate, which has implications for banks’ asset-liability management.
French savers had a combined 427 billion euros ($440 billion) in Livret A accounts as of the last count dating from November, plus another 155 billion euros in similarly regulated LDDS accounts, according to the Caisse des Depots, a public sector finance body.
The central bank makes its interest rate recommendation according to a formula based in part on inflation and short-term interest rates, aiming to give savers a slight real return over inflation.
The prospect of a cut in the interest rate that the government obliges banks to pay savers on the accounts comes as some investors in European bank shares take a fresh look at French opportunities.
Jupiter Asset Management fund manager Guy de Blonay said a cut would help French banks that have not benefited from higher interest rates over the past few years compete more effectively for investor cash versus European peers.
“Europe has a two-speed banking sector. France is on one side, and countries like Italy and Spain are on the other,” he told Reuters. “The expected cut to the Livret A rate may help to alter that, although political and economic uncertainty will continue to affect French banks.”
($1 = 0.9699 euros)
(Reporting by Leigh Thomas; Additional reporting by Sinead Cruise in London, Editing by Sudip Kar-Gupta and Philippa Fletcher)
