Three of the Netherlands’ biggest banks expect lending rates for small and medium-sized firms to rise because of higher bank costs, the Financiele Dagblad reports on Monday.

ABN Amro, ING and Rabobank are in agreement that lending rates will have to rise because a growing number of small and medium-sized firms need to be put into ‘intensive care’ by their bank.

This requires a bank to hold four times as much capital to cover the loan as a loan carrying a normal level of risk. And this extra capital will have to be covered by higher rates, the banks told the FD.

Cheap credit

‘Companies are too used to cheap credit,’ Pieter van Mierlo, head of Financial Restructuring & Recovery at ABN Amro, told the paper. ‘The capital costs and the risk surcharge are not yet fully covered in the price of a loan.’

The banks say they have a much better insight into the pricing of a product, and where they used to cross-subsidise loans, this is no longer acceptable.

‘Between 2005 and 2007, the annual risk for ING averaged €100m,’ Rob Wijman, the bank’s head of Global Credit Restructuring, told the FD. ‘That has now reached €2bn, but passing on these costs takes time.’

With a growing number of small and medium-sized firms dependent on their bank, margins too low and risks too high, says the paper. Consequently lending rates will have to rise, by 1.3% if all the costs are passed on.