Today, the Australian has run an article claiming that banks are profiting from big falls in deposit rates, which is lowering their funding costs:
…data exclusive to The Australian shows rates on term deposit and online savings accounts have materially fallen over the past 12 months, particularly as the banks’ own programs to dramatically lift their deposit base to meet new capital requirements ease…
Deposits, including from businesses, make up about 65 per cent of the banks’ funding costs… The average rate advertised that CBA, ANZ, Westpac and National Australia Bank will pay for a $50,000, one-year term deposit has fallen to 3.39 per cent from 4.35 per cent a year ago, according to RateCity.
The average rate in April was 4.06 per cent, highlighting the sharp improvement in pricing for the banks in the past six months…
“Falling term deposit rates are good for banks every way you look at it, with the final positive being it’s actually good for their share prices in terms of money flowing into them to chase the yield,” said Charlie Aitken, managing director of wholesale broking at Bell Potter.
It seems premature for The Australian to claim that bank deposit funding costs are falling. According to RBA data, deposit funding costs remain elevated, with the spread between the various deposit maturities and the official cash rate remaining near decade highs (see below charts).
According to the RBA, overall deposit costs (shown above by the black lines) have risen relative to the official cash rate since late-2011, hitting an all-time average high of 0.53% above the cash rate in the three months to May 2013, but since falling back marginally to 0.52%.
The situation is similar when deposit costs are compared against discount variable mortgage rates. According to the RBA, the spread between the discount variable mortgage rate and the average deposit rate has been falling since late-2011, suggesting that the banks’ deposit funding costs have risen, although there has been a slight improvement over recent months:
So overall, there looks to have been some slight improvement in bank funding costs, but nothing to get excited about.
