BANKS are likely to cut the interest rates paid to savers as competition for deposits eases this year, Bendigo and Adelaide Bank's managing director, Mike Hirst, has predicted.
Since the global financial crisis, savers have benefited from relatively high interest rates on term deposits and online savings accounts, as banks sought to obtain a greater share of their funding from more stable sources.
The so-called war for deposits has also been blamed by banks for pushing up their costs, and causing them to deny mortgage borrowers the full value of cash rate cuts.
But with global markets stabilising, there are tentative signs the battle for deposits is abating. Although Mr Hirst said on Monday that competition for deposit funding remained strong, lower wholesale funding costs was likely to cause this rivalry to ease. "At the end of the day people are interested in having a stable funding base and the maturity is important in that," he said.
"I would expect that as long as there's continued strength in those wholesale funding markets I would think there will be some abatement around the pricing of retail deposits."
The comments came after Bendigo said cash earnings rose 4.4 per cent to $169 million in the latest December half, a stronger-than-expected result that saw its stock price rise 32¢, or 3 per cent to $10.17.
Before the GFC, interest rates on term deposits were below the cash rate, but they are now well above this benchmark.
Cannex analyst 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 dropped slightly in recent months.
"The rates are dropping off, which is to the banks a delight, because they don't have to offer as much," Mr Beu said.
The Commonwealth Bank's chief executive, Ian Narev, last week said wholesale markets had improved, and the bank would not "rate chase" short-term deposits that would suddenly leave the bank.
Bendigo was the latest bank to benefit from wider profit margins in lending - a trend seen across the industry after banks failed to pass on cuts to the cash rate in full to borrowers.
Against the improvement in margins, expenses for bad and doubtful debts increased from $16.6 million to $32.1 million over the half, a result impacted by flood-affected customers in its rural bank and clients of the collapsed firm Great Southern.
Mr Hirst was also cautious on the outlook for growth, saying consumers remained hesitant about taking on more debt as they focused on improving their balance sheets.
"We are yet to see more recent rallies in debt and equity markets translate into a material increase in demand for credit," Mr Hirst said.
Bendigo declared a fully-franked interim dividend of 30¢ a share, which is unchanged on the previous corresponding period.