Signs deposit wars 'abating' as global markets stabilise
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.
Frequently Asked Questions about this Article…
Yes — Bendigo and Adelaide Bank’s managing director Mike Hirst predicted banks are likely to cut the interest rates they pay savers this year as competition for deposits eases. He said stabilising global markets and lower wholesale funding costs should reduce pressure on banks to offer high retail deposit rates.
The “war for deposits” refers to intense competition among banks since the GFC to attract customer deposits by offering higher term deposit and online savings rates. The article says there are tentative signs that battle is abating as global markets stabilise and wholesale funding costs fall, although competition for deposit funding remains strong.
Wholesale funding costs influence how much banks need to pay retail depositors. When wholesale markets improve and funding becomes cheaper or more stable, banks are less pressured to offer high retail deposit rates. Both Mike Hirst and Commonwealth Bank CEO Ian Narev noted improved wholesale markets could lead to some easing in retail deposit pricing.
According to Cannex analyst Adam Beu, typical term deposit rates have been around 4.5% while the cash rate was about 3%. The article notes average term deposit rates have dropped slightly in recent months, reflecting easing competition for deposits.
Bendigo reported cash earnings up 4.4% to $169 million for the December half. Its shares rose 32¢ (about 3%) to $10.17. The bank benefited from wider lending margins and declared an unchanged fully franked interim dividend of 30¢ per share, which is relevant for income-focused investors.
Banks have blamed the deposit war and higher funding costs for limiting how much of cash rate cuts are passed to borrowers. The article notes lenders generally saw wider profit margins in lending after not fully passing on cash rate reductions to mortgage customers.
Not yet, according to Bendigo’s Mike Hirst. He said consumers remain cautious and focused on improving their balance sheets, and recent rallies in debt and equity markets have not translated into a material increase in demand for credit.
Bendigo’s expenses for bad and doubtful debts rose from $16.6 million to $32.1 million over the half. The increase was influenced by flood-affected customers in its rural bank and exposure to clients of the collapsed firm Great Southern.
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