The next Livret A rate will not be announced until mid-July. However, the battle for influence has already begun. Will the rate of this savings product held by around 55 million French people go beyond 4% in August? The increase has been multiplied by six since the start of 2022, rising from 0.5% to 3%. On February 1, 2023, this rate had increased by 2 to 3%.
“An increase is undoubtedly probable. If we apply the calculation formula, we would be on an increase of slightly more than 4%”, indicates to L’Express Philippe Crevel, director of the Cercle de l’Epargne. The economist is betting instead on a rate that would be “around 3.5 or 3.6%”, in other words an increase “intermediate between the status quo and the strict application of the formula”.
The Livret A rate is calculated twice a year, in February and August, and may be calculated two additional times – in May and November – in exceptional circumstances. The Governor of the Banque de France and the Minister of the Economy have the possibility of derogating from the calculation rule, determined by taking into account the rise in prices and interbank rates, at which banks exchange money at short term.
Banks that pass the increase on to their customers
The Livret A rate also has a wider impact on mortgages, as François Villeroy de Galhau explained on Friday May 5 on Radio Classique: “The Livret A rate is like a coin with its two sides: the saving side and the borrowing side.The Livret A rate is very important for social housing and more generally for mortgages […] since the Livret A is one of the financing resources for mortgages.”
When the Livret A rate increases, banks seek to “mutualize the cost” so as not to lose too much money. They will in fact pass on this increase to borrowers, explains Philippe Crevel. “For the banks, it is a question of compensating the losses with other resources”, summarizes the economist. The impact of this increase is however “marginal”, according to him. The increase in borrowing rates would indeed be “0.1 to 0.2 points”.
For BPCE, which includes the Caisse d’Epargne network, historical distributor of the Livret A savings account before its generalization in 2009, the rate increases weighed to the tune of 380 million euros on net banking income, equivalent to turnover for the sector in the first quarter of 2023. At this same player, the successive increases in the Livret A rates have already cost 700 million euros in 2022. And the bill could rise to 1.3 billion this year, according to the group’s calculations, remaining on a 3% basis.
However, the Livret A is only a small part of the balance sheet of banks. They therefore have the capacity “to globally absorb a new rise in rates without compromising their results too much”, specifies AFP Eric Dor, director of economic studies at the IESEG business school.
An impact for social landlords
Some financial players are slowing down to limit a further increase favorable to savers. On April 25, Eric Lombard, the managing director of the Caisse des dépôts et consignations (CDC), whose role is to manage part of the Livret A money with the banking networks, thus pleaded for the status quo with a Livret A which would remain at 3%. Asked about the next increase, the Minister of the Economy Bruno Le Maire declared, Wednesday on France News, that its “first responsibility is to protect the savings of the French”, thus suggesting that it would not be unfavorable to see this rate increase. For his part, François Villeroy de Galhau, the Governor of the Banque de France, stressed on Friday that he would make a recommendation “taking into account” the interests of savers and borrowers.
In addition, an increase in the Livret A rate has an impact on social housing players. A majority of the money paid into Livrets A, but also into Livrets d’Épargne Populaire (LEP) and Livrets de développement durable solidaire (LDDS), is used to finance the construction and renovation of social housing. Loans granted to lessors are based on a variable rate that follows the evolution of this savings product.
“The cost of the Livret A resource determines the rates of mortgages taken by social landlords. The more expensive it is, the higher this borrowing rate will be”, explains Philippe Crevel. “An increase in the rate of the booklet A, from 3% to 4.3%, would cost 2.1 billion euros of annual interest surcharge to social landlords”, estimates in a note Eric Dor.
“The Livret A rate is particularly central to the financing of social housing and urban policy. Too high a rate would be very unfavorable to this key sector for our social cohesion and our economic activity”, explained last January the Bank of France in a press release. We understand why the Banque de France looks twice before announcing a possible increase.
“The Banque de France is fulfilling its role: on the one hand, it oversees the good financial health of the banks, which is its number one job, and on the other, oversees the stability of the financing system, while ensuring that savers are not completely harmed”, emphasizes Philippe Crevel. “She must arbitrate between these different objectives, and therefore remains extremely cautious.”