Belgium will start issuing one-year state bonds in September in a move which the government hopes will force Belgian banks to raise their interest rates.
Named after Finance Minister Vincent Van Peteghem, the so-called "Van Peteghem bond" will allow citizens to receive an annual coupon for the money lent to the government. But whereas bonds normally last for a minimum of three years, this version matures after just one year.
According to the Belgian Debt Agency, the year-long state bond will be issued on 4 September and will offer a net yield of 2.71%. The Finance Minister has also decided to halve the bond’s withholding tax from 30% to 15%, making it more attractive for Belgian borrowers.
The bond is a last-ditch attempt to nudge the country’s banks into increasing their interest rates on Belgians' savings accounts, which have lost €88 million in interest income since 2008.
Multiple parties in government had been pushing for the banking institutions to better protect Belgians’ savings and had even envisaged legally forcing them to do so.
Prime Minister Alexander De Croo had previously stated that the Federal Government would intervene if the country's banks continue to refuse to raise interest rates. "I am someone who believes in the free market," he stated, "but if the free market does not work, then one must intervene."
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But Belgian banks had consistently opposed the idea, with the National Bank of Belgium telling the government that "an ill-considered intervention by the public authorities could profoundly affect the stability of the banking sector" and risk sending the country into financial jeopardy.
Van Peteghem had already sent a letter to the banking federation Febelfin, urging the sector to raise the savings rates they offer. Yet he subsequently dropped the idea, fearing it would weaken the banking sector. The state bond should instead give the government a competitive edge as they are more advantageous to borrowers “who are uncertain about their liquidity”, L'Echo reports.
Meanwhile, saving accounts are mostly beneficial for Belgians who stay with one bank for an extended period due to the promise of a loyalty bonus.
