A senior Citibank executive has sounded a warning over the rapid growth in bank deposits from self-managed superannuation funds, saying there is a risk funds could be withdrawn as sharemarkets rebound.
People who manage their own retirement savings are an important source of funding for banks - they have increased their bank deposits by 40 per cent to almost $120 billion in the past four years.
While this conservatism among SMSF trustees has benefited banks so far, Citi's regional director of emerging affluent banking for the Asia-Pacific region, Simon Pelletier, has highlighted the risk of an outflow of funds from deposits into equity markets.
With deposit interest rates set to fall further after Tuesday's rate cut, it is a risk that is also weighing on the minds of local bank executives.
"Australia has some specific challenges for banks in terms of the SMSF market and its evolution," Mr Pelletier said in an interview.
"As we see the stronger risk-on attitudes of the investor markets opening up, more appetite for equities and various managed-product platforms, a lot of the deposit momentum that's built up under SMSF is a potential risk area, it's something that really needs attention in the banking space."
SMSF funds only account for about 8 per cent of the nation's $1.5 trillion deposit pool, but Mr Pelletier's comments highlight a debate over deposits that is still being thrashed out.
New rules require banks to source a larger share of their funding from deposits, and regulators are pushing banks to put the greatest emphasis on "sticky" deposits that are unlikely to be suddenly withdrawn. But in a move questioned by banks, the Australian Prudential Regulation Authority this week said it would view deposits from SMSFs as less "sticky" than those from households.
Like other banks, Citi is targeting affluent customers that are less likely to suddenly withdraw their deposits. But Mr Pelletier said there was also a part of the market that was much more flighty.
"There is a ragged edge of deposit markets which are totally price dependent and they are in a sense wholesale funding markets because the relationship that comes with those funds is never particularly sticky," he said.
Despite the falling returns from deposits, Rainmaker's head of research, Alex Dunnin, said SMSF trustees were "highly unlikely" to suddenly withdraw their funds from banks and put it into shares.
"SMSF trustees are renowned for their investment conservatism," he said.