Bank of Ireland is set to become the first domestic financial institution to charge customers for placing their money on deposit with the bank.

This unprecedented move comes months after the European Central Bank began charging financial institutions for depositing money with it by charging them 0.4 per cent to hold their cash overnight.

The Irish Times has learned that Bank of Ireland, which is 14 per cent owned by the State, has informed its large corporate and institutional customers that it plans to charge them for deposits of €10 million or more from October.

It is understood that a negative interest rate of 0.1 per cent will be applied to such deposits by Ireland’s biggest bank.

Only a small group of customers will be affected by the charge and the bank has indicated that it has no plans to levy a negative interest rate on either personal or SME customers.

Tradition broken

However, this will be the first time in living memory that an Irish-owned institution has applied a negative interest rate on deposits, breaking the long-held tradition of a bank paying customers to hold their money.

A spokesman for Bank of Ireland said its policy was not to comment on its pricing but “we keep all our rates under review”.

Ulster Bank, which is owned by UK lender Royal Bank of Scotland, has already quietly introduced negative interest rates for a small number of large corporate clients.

Ulster Bank has products priced off the back of Euribor, a European interbank lending rate, which is at an all-time low and turned negative last year. This charge by the bank does not apply to SMEs or personal customers.

A spokeswoman for AIB said the 99.9 per cent State-owned institution was not applying negative rates to personal, business or corporate customers. “We have no current plans in this regard,” she added.

Similarly, Permanent TSB, which is 75 per cent State owned, said it was not charging any of its customers for deposits and had no plans to introduce a negative interest rate.

The move by many central banks across the world – including Denmark, Sweden, Switzerland and Japan – to charge negative interest rates is designed to encourage investors to seek higher returns elsewhere. While most banks have been reluctant to pass on negative rates for fear of losing customers, a few have begun to charge large depositors.

Rabobank

Raiffeisenbank Gmund am Tegernsee, a community bank in southern Germany, has said it would charge a fee of 0.4 per cent from September on deposits of more than €100,000 held in current accounts.

Skatbank, a small bank in the east of Germany, introduced negative interest rates for private clients with balances above €500,000.

Separately, it has emerged that Rabobank has surrendered its Irish banking licence. It now operates here as a branch of its Dutch parent company and is prudentially regulated in the Netherlands.

Rabobank’s primary focus in the Irish market is on corporate lending in the agriculture and food sectors, which is centrally funded by its parent. Its corporate loan book in Ireland is currently about €2 billion.

However, in April 2016, Rabobank Ireland stopped operating a deposit taking facility for corporates.

This was never a core activity for the Bank in Ireland and the small level of deposits it held here were returned to customers.

RaboDirect, a brand offshoot online that is also part of the Dublin branch operation, has 90,000 customers in Ireland with deposits of almost €6 billion.

Rabobank also owned ACC bank, which it has closed in 2014, with customer loans later outsourced to Capita.