Bendigo boss flags fall in interest rates for savings
Since the global financial crisis, savers have benefited from relatively high interest rates on term deposits and online savings accounts, as banks sought to get a bigger share of their funding from more stable sources.
The banks have also blamed the so-called war for deposits for increasing their costs and causing them to deny mortgage holders the full value of the Reserve Bank's cash rate cuts.
However, with global markets stabilising there are tentative signs that the competition for deposits is abating. On Monday, Mr Hirst said that although competition for deposit funding was still strong, lower wholesale funding costs were likely to ease this rivalry.
"At the end of the day, people are interested in having a stable funding base and the maturity is important in that," he told analysts. "I would expect that as long as there's continued strength in those wholesale funding markets there will be some abatement around the pricing of retail deposits."
His comments came after Bendigo said that its cash earnings rose by 4.4 per cent to $169 million in the latest December half, a stronger result than expected, pushing up its share price by 32¢, or 3 per cent, to $10.17 on Monday.
Before the global financial crisis, interest rates on term deposits were less than the cash rate, but they now exceed this benchmark.
An analyst with Cannex, Adam Beu, said term deposit rates were still typically about 4.5 per cent, compared with the cash rate of 3 per cent, but average term deposit rates had recently fallen slightly.
"The rates are dropping off, which is to the banks a delight because they don't have to offer as much," he said.
Last week, the Commonwealth Bank's chief executive, Ian Narev, said that wholesale markets had improved and the bank would not "rate chase" short-term deposits that could be withdrawn suddenly.
Bendigo is the latest bank to benefit from wider profit margins in lending - a trend that has been prevalent throughout the industry after the banks failed to pass on the full cut in the cash rate to their borrowers.
Against the improvement in Bendigo's margins, expenses for bad and doubtful debts rose from $16.6 million to $32.1 million in the half-year, partly due to flood-affected customers in its rural branches and to clients of the collapsed agribusiness firm Great Southern.
Mr Hirst was also cautious about the outlook for growth, saying consumers were still hesitant about taking on more debt.
"We are yet to see more recent rallies in debt and equity markets translate into a material increase in demand for credit," he said.
Bendigo declared a fully franked interim dividend of 30¢ a share, which is unchanged on the previous corresponding period.
Frequently Asked Questions about this Article…
According to Bendigo and Adelaide Bank managing director Mike Hirst, yes — banks are likely to reduce the interest rates paid to savers this year as competition for deposits eases and wholesale funding costs fall. He said that as wholesale markets strengthen, rivalry over retail deposits should abate, which can put downward pressure on savings and term deposit rates.
The article explains that since the global financial crisis banks have offered relatively high rates on term deposits and online savings accounts to attract a bigger share of funding from more stable sources. That competition for deposits drove rates above historical benchmarks — resulting in term deposit rates that now typically exceed the official cash rate.
The article cites Cannex analyst Adam Beu saying term deposit rates are still typically about 4.5%, compared with the cash rate of 3%. He also notes that average term deposit rates have recently fallen slightly, reflecting easing competition for deposits.
Wholesale funding costs affect how much banks need to pay to attract deposits. The article reports that lower wholesale funding costs are likely to reduce banks' need to compete aggressively for retail deposits, so savings and term deposit rates can decline. Commonwealth Bank CEO Ian Narev also said improved wholesale markets mean the bank won’t ‘rate chase’ short-term deposits that could be withdrawn suddenly.
Bendigo reported cash earnings rose 4.4% to $169 million in the December half — a stronger result than expected. The news lifted its share price by 32 cents (about 3%) to $10.17. Bendigo also declared an unchanged fully franked interim dividend of 30 cents a share.
No. The article notes banks have blamed the ‘war for deposits’ for increasing their costs and have not passed on the full value of the Reserve Bank’s cash rate cuts to mortgage borrowers. At the same time, recent easing in deposit competition is starting to reduce the rates banks offer savers.
Yes. Bendigo’s expenses for bad and doubtful debts rose from $16.6 million to $32.1 million in the half-year. The increase was partly attributed to flood-affected customers in rural branches and exposure to clients of collapsed agribusiness firm Great Southern.
Mike Hirst was cautious: consumers remain hesitant to take on more debt, and recent rallies in debt and equity markets have not yet translated into a material increase in credit demand. For everyday investors, that means banks may see slower loan growth despite improved margins, which can influence profit outlooks and dividend expectations.
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