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Euro zone banks earn more from lending despite moans over negative rates

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01/16/2020 | 03:05am EST
European Central Bank (ECB) headquarters building is seen in Frankfurt

(This January 15 story corrects time period to first three quarters from third quarter throughout)

The ECB cut its deposit rate to minus 0.5% in September but has long argued that banks are net beneficiaries of its super-easy policy as higher lending volumes more than offset the drag from low rates.

Banks supervised by the ECB, the biggest lenders in the 19-country currency union, had net interest income of 202.9 billion euros (173.13 billion pounds) in the first three quarters, up from 194.4 billion a year earlier, the highest nine-month figure since the ECB started supervision in late 2014.

Overall income also rose but banks' combined net profit still fell 8%, as costs continued to rise and risk provisions surged, ECB data showed.

Banks in Germany, the bloc's biggest economy, fared the worst in the period and their combined net profit was on a par with lenders from Greece, a much smaller economy that was barely saved from collapse in recent years with three European rescue packages.

German banks' combined return on equity was 0.4%, indicating that the sector was not earning the cost of its capital, even if it was well capitalised for now.

Banks in Spain and Italy, both considered in the past to be bailout candidates, meanwhile earned returns of over 7%, among the best in the euro zone.

The combined return on equity of euro zone banks fell to 5.83% from 6.85% a year earlier, the lowest figure for the period in three years.

The ECB has also argued that weak profitability is one of the biggest risks to the euro zone's economy and complaints about low rates distract attention from lenders' outdated business models, which perpetuate weak earnings.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)

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