Savers dash for Belgian bond aimed at pushing banks to raise deposit rates

By Yoruk Bahceli

(Reuters) -Belgium saw 4 billion euros of demand from savers for a new bond it launched on Thursday, its debt agency said, a strong start for the sale aimed at pressuring banks to raise their deposit rates.

European lenders awash with cash have been resisting raising savings rates despite a surge in market interest rates as central banks fight inflation, prompting withdrawals by households looking for better returns elsewhere.

Government debt has become a popular alternative for savers, and states across the euro zone are taking advantage of savers' appetite with some shifting big slices of their funding programmes to households.

Belgium's government, which has already seen good demand from savers for debt sales dedicated to retail investors this year, designed the new bond to compete with bank deposits.

The one-year bond will pay a rate of 3.3%, compared with the 2.8% rate on outstanding deposits of up to two years, according to Belgium's central bank.

"The gap between the interest that banks collect and that they pay to savers ... remains too large," said a statement on the finance minister's website announcing the terms of the bond.

"We want to boost competition and encourage banks to raise interest rates."

On Thursday, the first day of the sale, savers bought 2.098 billion euros ($2.27 billion) of the bond, the debt agency said, followed by at least another 1.902 billion euros so far on Friday.

That is already 10-times the 390 million euros Belgium had raised from savers so far this year. The sale will close on Aug. 31.

Demand while strong is a tiny fraction of the hundreds of billions of euros of Belgian deposits.

But Jean Deboutte, director at Belgium's debt agency, noted some banks in Belgium had already raised their rates following plans for the new bond.

"I think it will be an incentive to the banks to do more," he said, though he added that banks awash with liquidity might not mind outflows.

The bond's one-year maturity mirrors savings accounts that increase the payout to savers if they lock up their money for a year. The government has agreed a bill pending approval reducing the withholding tax buyers will pay to 15% to make the bond more attractive relative to savings accounts, from 30% on the rest of its retail bonds.

($1 = 0.9238 euros)

($1 = 0.9258 euros)

(Reporting by Yoruk Bahceli in Amsterdam, additional reporting by Sudip Kar-Gupta in Brussels; Editing by Susan Fenton and Andrew Heavens)