BANKS are likely to lower the interest rates paid to savers as competition for deposits eases this year, Bendigo and Adelaide Bank's managing director, Mike Hirst, predicts.
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Narev, said that wholesale markets had improved and the bank would not "rate chase" short-term deposits that could be withdrawn suddenly.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.