German banks right to charge for accounts - Bundesbank's Dombret

By Frank Siebelt and Andreas Kröner

FRANKFURT (Reuters) - German banks are right to consider current account fees to counter low central bank rates, but an outright charge on deposits, as pioneered by a few lenders, is unlikely to become common, Bundesbank board member Andreas Dombret told Reuters.

While Germany has been Europe's engine of growth, its banks have struggled to cope with the European Central Bank's ultra-low interest rates and stiff competition in a saturated market.

Earlier this month, Postbank, a unit of Deutsche Bank, became the latest German lender to scrap free current accounts for millions of customers in an effort to offset the 0.4 percent charge the ECB levies on banks' reserves over a certain threshold.

"I think it is right that banks are discussing current account fees," Dombret said in an interview. "Banking services cannot be free if banks earn no interest margin."

Trying to stave off deflation and prop up consumer prices, the ECB is expected to keep a negative rate on banks' excess reserves for years to come.

This is a particular challenge in Germany where account fees were taboo until recently and banks traditionally rely on net interest income for their profits.

Several banks already charge corporate clients a percentage charge on large deposits and a small cooperative bank in the Bavarian Alps has even started charging wealthy retail customers.

Dombret, however, did not believe deposit charges would spread, citing a 2015 Bundesbank survey in which only 16.4 percent of all German banks said they had considered passing on the ECB's negative deposit rate to their customers.

"There are no indications that banks pass on the negative ECB interest rates across the board to their clients," he said.

WEAKNESS

Germany's biggest banks fared among the worst in the European Banking Association's stress test last month and the International Monetary Fund singled out Deutsche Bank as the most important net contributor to systemic risks in the global banking sector.

Deutsche's shares have fallen 45 percent since the start of the year and Commerzbank is 38 percent lower, lagging the euro zone bank index, down 29 percent.

"The drop in bank market capitalisation is critical because this makes raising capital difficult," Dombret said. "If there was a desire for a capital injection, this would be would significantly more expensive."

Dombret blamed the ECB's low interest rates and their impact on banks' profits for most of this share price weakness.

"The main reason for the weakness of German banks is the high uncertainty about their structural profitability," he said.

He added, however, that banks should cut costs and work on their business model to adapt to the new environment.

"Sometimes it can also help to reduce the complexity of a bank, so that investors regain confidence."

(Writing by Balazs Koranyi and Francesco Canepa; Editing by Alexandra Hudson)