FRANKFURT/PARIS: Rock-bottom interest rates hurt more big European banks in 2016 than in the previous year, but the worst could soon be over with the prospect of rising borrowing costs rippling from the US to Europe.
Low rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 debt crisis.
But the policy has been politically divisive, prompting fierce criticism from famously thrifty Germans as the returns on savings in Europe’s biggest economy dwindled to nothing.
It also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them.
Last year marked a new low, according to a survey by Reuters of 20 large European banks conducted in mid-February.
While seven in that group saw net interest income fall during 2015, that number increased to 12 in 2016, with the average dip more than 7 percent. That was steeper than the roughly 5 percent slip on average in 2015.
Such income is the difference between interest charged on, say, a loan and the cost of holding a deposit. It is a bellwether of earning power, closely watched by investors, and its decline bodes ill for the sector.
Many executives are now pinning their hopes on a change in direction for central banks given that rate hikes appear to be on the cards in the US this year — and ultimately a paring back of easy-money policies in Europe.
“It is usually the US that leads the pack,” said Charles Goodhart of the London School of Economics (LSE), a former member of the Bank of England’s (BoE) Monetary Policy Committee.
“If (US President Donald) Trump does manage to get an expansionary fiscal policy, there will be increases in interest rates,” he said, adding that the effect would also be felt in Europe.
Trump has pledged to stimulate growth in the world’s largest and most influential economy through a combination of heavy infrastructure investment and deep corporate tax cuts.
In December, the US Federal Reserve raised interest rates and signaled a faster pace of increases in 2017.
For European banks, the shift in rates cannot happen soon enough.
Lars Machenil, chief financial officer of France’s BNP Paribas, one of Europe’s biggest lenders, said the difference could be hundreds of millions of euros of extra income.
“The lowering of interest rates has had a negative effect on the top line. If that would be reversed, we would see something similar back ... but it will take time,” he said.
In 2016, Switzerland’s Credit Suisse saw interest income dip by about 19 percent, while at Germany’s Commerzbank and Deutsche Bank, it fell by about 13 and 8 percent respectively, the Reuters survey found.
UniCredit’s interest income dipped by about 6 percent. Spain’s Bankia saw a drop of about one fifth.
While successful in helping a brittle euro zone economy gradually revive from the debt crunch in the short term, zero or negative rates have, in the eyes of critics, struck at a central tenet of banking — lending on the back of deposits — and turned the principle of saving for retirement on its head.
There are signs that the struggle of frustrated lenders is being noticed in Frankfurt, seat of the European Central Bank (ECB).
Yves Mersch, a member of the ECB’s executive board, the nucleus of euro zone policy-setting, recently said it needed to take interest rate cuts off the table, which would mark a retreat from its policy of cheap money.
“How much longer can we continue to talk about ‘even lower rates’ as being a monetary policy option?” Mersch said.
Penalyzing banks for storing money makes holding deposits, traditionally the bedrock of any lender, more expensive, and this prompts some to steer savers toward fund products for which a fee can be charged.
UBS CEO Sergio Ermotti has warned that the world’s biggest wealth manager could pass on the cost to depositors if sub-zero rates persist. So far, only one Swiss bank, Alternative Bank Switzerland, has imposed such charges.
Another way around the problem is keeping deposits low and bolstering lending.
Sweden has generally done better in this respect than most. That is something that Barclays analyst Mike Harrison attributes to a lower average level of deposits, which cost a bank money if it cannot lend and must pay a penalty for storing them at the country’s central bank.
The ECB imposes a so-called negative rate equivalent to €4 annually on each €1,000 that lenders deposit with the central bank. Banks in Sweden and Switzerland, outside the neighboring euro zone, pay a similar charge.
“Swedish banks have managed best to avoid the impact of zero rates due to the fact that they held fewer deposits,” said Harrison. “That made it easier to earn a healthy margin on their loans.”
Swedbank, for instance, boosted its lending last year by 7 percent to about 1.5 trillion crowns, while its deposits from the public were roughly half that and rose more slowly.
The Netherlands’ ING and Sweden’s Swedbank, where lending outpaced the inflow of deposits, posted a roughly 9 and 3 percent increase respectively in such interest income, the Reuters study found.
Germany’s Commerzbank tried a broadly similar strategy, cutting deposits from corporate customers by about €22 billion. But the cost of penalty or negative rates still squeezed its income by more than €200 million in 2016 — roughly a third less than its net profit for the full year.
Michael Heise, chief economist with giant German insurer Allianz and a long-standing critic of cheap-money policies, believes relief is at hand.
“There is finally hope of a change in interest rates,” he said. “The tone among policymakers has changed. The evidence is clear. I think we could see rates rise next year.”
European banks see light at end of low-rates tunnel
European banks see light at end of low-rates tunnel
How lifestyle-led real estate is reshaping Saudi Arabia’s urban future
- Government spending, regulatory changes, and incentives for foreign investors are fueling development
RIYADH: Saudi Arabia’s real estate sector is entering a new phase, one defined by lifestyle, experience, and quality of life rather than sheer housing volume.
Driven by Vision 2030, lifestyle-focused developments are set to outperform traditional residential projects, reshaping how people live, work, and connect across the Kingdom.
Government spending, regulatory changes, and incentives for foreign investors are also fueling development. Rising demand across residential, commercial, and logistics sectors, along with the push for smart cities and sustainability, is reshaping the market.
Saudi Arabia’s real estate market was valued at $77.2 billion in 2025 and is projected to grow to $137.8 billion by 2034, with a compound annual growth rate of 6.7 percent from 2026 to 2034, according to IMARC Group.
Lifestyle-focused real estate market
Saudi Arabia’s real estate landscape has evolved beyond conventional housing. Guided by Vision 2030, it now plays a key role in enhancing quality of life, boosting tourism, and driving economic diversification.
According to Sally Menassa, partner at Arthur D. Little, what stands out today is a clear shift from volume-driven residential supply to lifestyle-led, experience-based development.
“As a result, the lifestyle-focused segment is expected to outperform conventional residential real estate, growing at around 8 percent annually over the next five years. This growth is being driven by changing consumer expectations, population growth, rising incomes, and the scale of public investment shaping new urban environments,” Menassa said.
She added that demand in the Kingdom’s real estate is rising across four key segments: mixed-use districts near urban hubs such as King Salman Park; wellness-focused communities prioritizing walkability and services; coastal living along the Red Sea with branded residences; and heritage-driven districts like Diriyah and Al Balad that blend culture, hospitality, and long-term value.
“Overall, this marks a fundamental shift in the Kingdom. Real estate is no longer an end in itself and about delivering buildings; it is becoming a platform for place-making, economic diversification, and sustained value creation,” the ADL partner explained.
From another perspective, Houssem Jemili, senior partner at Bain and Co. Middle East said: “Saudi’s real estate market is forecast at roughly 7–8 percent CAGR to 2030; ‘lifestyle’ demand is being pulled most by amenity-led mixed-use communities plus higher-spec, greener and wellness-leaning homes.”
A report from PwC Middle East released in 2025 focused on the future of sustainable real estate in Saudi Arabia, and showed that the sector is shifting toward livability-focused, high-quality urban developments. Giga-projects are driving demand for mixed-use, wellness-focused, and socially connected communities that enhance quality of life.
Imad Shahrouri, cities sector lead partner, consulting, in Riyadh at PwC Middle East said: “By placing livability and human experience at the foundation of its urban agenda, Saudi Arabia is shaping a market where lifestyle-led developments will play an increasingly influential role in driving demand and investment.”
Core lifestyle elements developers are prioritizing
Saudi developers are shifting from the traditional “build and sell” model to creating integrated lifestyle communities focused on long-term value and everyday living.
Menassa from ADL highlighted that the shift centers on enhancing public spaces — with walkable areas, parks, and wellness facilities — to promote healthier, more social lifestyles, especially for a younger, health-focused population.
“Convenience is also playing a bigger role in shaping residential districts. Schools, childcare centers, clinics, co-working spaces and a wide range of food and beverage options are increasingly located within walking distance of homes, reducing commuting time and making everyday life more efficient and connected,” she said.
The partner added: “Equally important is the role of culture and social activity. Many developments now incorporate cultural venues, entertainment spaces and destination dining, ensuring that neighborhoods remain active throughout the day and week rather than becoming dormant outside working hours.”
Menassa went on to stress that real estate in Saudi Arabia is evolving into a strategic tool for quality of life, tourism, and talent attraction. Driven by Vision 2030, developments now integrate smart infrastructure and global lifestyle standards, while staying rooted in local culture to meet the needs of a young, urban population.
FASTFACT
Driven by Vision 2030, lifestyle-focused developments are set to outperform traditional residential projects, reshaping how people live, work, and connect across the Kingdom.
From Bain’s lens, Jemili said: “Developers are prioritizing livable neighborhoods. Walkability, parks and sport, culture and entertainment access, and everyday convenience, shaped by Vision 2030’s Quality of Life agenda and the 70 percent homeownership-by-2030 push.”
Shahrouri from PwC shed light on how developers in the Kingdom prioritizing livability, wellbeing, and inclusive, community-focused spaces are, aligning with Vision 2030’s push to enhance daily life and promote social integration while reflecting local identity.
“As a result, lifestyle-led elements such as walkable neighborhoods, activated public spaces and integrated community facilities are becoming central to new destinations, ensuring future developments foster more connected, resilient and experience-rich ways of living,” he said.
Regions, cities key hubs for experiential development
Several Saudi cities are emerging as prominent centers for lifestyle-focused, experiential development, each defined by its unique urban and economic character.
From ADL’s perspective, Riyadh is leading this shift as it positions itself as a global capital. The city is seeing strong demand for integrated, mixed-use districts that support live-work-play lifestyles.
“Developments such as KAFD, Diriyah, and areas surrounding King Salman Park reflect a growing preference for urban living that combines employment, culture, green space, and entertainment in close proximity,” Menassa said.
“Jeddah’s appeal is different, but equally compelling. Its strength lies in its coastal character, historic fabric, and more relaxed urban rhythm. Waterfront regeneration and heritage-led districts, particularly around Al Balad, are driving interest in developments that blend walkability, culture, and sea-facing lifestyles — attracting residents, investors, and tourists alike,” she added.
The partner continued to underline that destination developments along the Red Sea coast focus on sustainable, low-density communities blending hospitality, nature, and residential living, promoting wellness and eco-tourism.
Menassa noted that secondary cities like Abha and AlUla are emerging as hubs for outdoor living, culture, and heritage, supported by government policies and investments.
These lifestyle-driven districts appeal to residents for livability and job access, and to investors for scale and stability, offering resilience through everyday services and cultural experiences.
From Bain’s side, Jemili explained that Riyadh and Jeddah stand out as the main hubs because they combine jobs, population growth, liquidity and are where “integrated community” formats scale fastest.
“We’re seeing the same in Makkah and Madinah; the focus is shifting from delivering more units to delivering higher-quality development and standards,” he said.
From PwC’s perspective, Shahrouri noted that regions across Saudi Arabia are becoming hubs for lifestyle-driven development, with large-scale regeneration creating sustainable, well-designed environments that enhance urban living and attract global investment.
“Flagship projects are reshaping their surroundings by focusing on the character and feel of place, bringing together community elements, environmental responsibility, and integrated urban design.”
Their growing appeal comes from the balance they strike between modern infrastructure and a human-centered approach to planning, creating destinations where daily life feels more seamless and connected,” he said.
Next phase of Saudi real estate evolution
The next phase of Saudi Arabia’s real estate evolution is likely to be defined by integration, intelligence, and regeneration.
From ADL’s lens, Menassa explained that Riyadh is set to feature highly vertical, dense urban environments designed for land efficiency and sustainability, with fully integrated live-work-play ecosystems that reduce commuting, boost productivity, and enhance social cohesion.
“The real shift, however, is toward AI-enabled and data-driven communities, where energy, mobility, and services are actively managed rather than passively consumed. Real estate will increasingly be judged not by how much is sold, but by how well places perform — in terms of livability, productivity, and environmental outcomes,” she said.
The partner noted that Saudi Arabia is boosting private sector involvement, public-private partnerships, and institutional investments to develop public spaces and social infrastructure. The focus is shifting from just constructing cities to designing lifestyles, using real estate as a key driver for economic growth and social transformation.
Jemili from Bain said: “The next phase is more about operating districts like platforms, digital twins, and real-time data to optimize energy, maintenance, mobility, and resident experience, creating tighter live-work-play loops. Rather than ‘building more.’”
From PwC’s side, Saudi Arabia is building a strong foundation for future cities by focusing on resilient, resource-efficient developments and adaptable infrastructure, paving the way for smart, connected urban models like vertical districts and digital neighborhoods.
“These emerging environments are set to respond more naturally to the needs of their communities. As the quality and experience of urban life continue to rise, our cities are poised to become more intelligent, enriching and future ready, evolving with their residents and reflecting the ambition of a nation transforming at pace,” Shahrouri concluded.
