Westpac still hot for deposits

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After the RBA’s irresponsible exhortation to the banks to ramp up wholesale borrowing last week it is something a relief to see Westpac today declare that deposits will remain a key focus. From the AFR, according to senior executive Brian Hartzer:

Mr Hartzer said on Tuesday that the bank was prioritising growing deposits and strengthening its balance sheet in the current low credit growth environment.

One hopes this is more than mere window dressing. I don’t for a moment think that the banks would do this voluntarily so it means APRA is still on their hammer about funding all new loans from deposit growth. It’s a great shame that it is no longer receiving support from the RBA.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. Westpac has raised online deposit rates at RAMs twice in March. They’re pretty competitive at 5.01% but Me Bank is paying 5.10% on a 12 month intro deal.

    • Europe has taught us that as a depositor one must be very clear what the credit quality is like of the institution that they deposit. Giving up 10 bpts for a major banks vs ME bank is pretty attractive.

      • Sure we’ve got problems, but we’re no Cyprus! We do a bit more here than launder dodgy Russian money into Europe.

        • but you cant argue that 10 basis points is a fair pick up for an institution that will be unlikely to be bailed out by the government in the case of default.

          • Deep T there are levels of credit and I am saying that a major bank in Australia with a AA+credit rating should have a better funding rate than ME bank which is rated???

          • ME Bank is a B.A.N.K bank. There’s no difference between ME and the Big Four as far as the law goes is there?

            Now if you take the view that the law might not count for much in a crisis, then maybe it would be prudent to move your funds out of ME and into one of the Big Four if things were looking flaky, but I think we’re a long way from that ATM. Besides, if things got that bad you’d probably be better of owning gold or keeping your cash under the bed.

          • With a BBB credit rating compared with the majors’ AA-, ME Bank doesn’t play in the shaky unsecured wholesale market anyway.

          • Lorax… from a credit ratings point of view there is a very big difference, between ME and Westpac.

          • If ME does fund through the industry super fund how is the rate decided, is it market based and in the interest of the members or in the interest of the aspirations of management to expand into banking.

          • Some more on ME Bank…

            Another element of ME Bank’s subdued growth has been conservative lending practices, and McPhee says the bank is not about to push credit to its target market.

            “After the GFC, everyone said the banks re-learned the lessons of being a responsible lender and having a trusted relationship with the customer,” he says.

            “ME Bank never had to re-learn the lesson because it never forgot that goddam lesson.”

            While the bank’s mortgage book is now 50-50 between deposits and securitisation, before the crisis the loans were fully wholesale-funded.

            At this stage, funding is not a constraint on ME Bank’s growth. With a BBB credit rating compared with the majors’ AA-, ME Bank doesn’t play in the shaky unsecured wholesale market anyway.

            The imperative is that securitisation markets remain open, as they seem to be. The bank raised $665m in October and McPhee is aware of a handful of other successful raisings from local issuers in the last six months.

            McPhee is unfazed by predictions of an imminent housing collapse, citing immigration and population growth and our still-growing economy.

            “Maybe house prices are overvalued by 10-15 per cent, but I can see the gap being closed over time through inflation.

            “I don’t see us waking up tomorrow and seeing house prices dropping 30 per cent.”

            In 2010-11, ME Bank recorded writeoffs of $1.7m and impairments of $28m — close to a pristine performance on a $6bn book.

            “We haven’t had to tighten our credit criteria,” McPhee says. “If anything, we have probably been too conservative.”

            http://www.theaustralian.com.au/business/financial-services/me-bank-sets-course-for-blue-collar-banking/story-fn91wd6x-1226236832646

  2. Between this and their latest report on economic expectations over the next 2 years, it seems like Westpac have a few guys who are switched on to the changing economic environment in Australia.

  3. Maybe if the RBA increased rates it would encourage more people to save… just a thought.

    • But that’s not their focus – as you know – all to well from the last week’s RBA collective blathering. It’s more akin to “spend-spend-spend! Paaar-t-hee!… wooo!! We’re so awesome!”

  4. Apparently (and it hasnt been denied) S&P have set some sort of limit on the deposits/term funding ratio with a limit on non deposit funding, hence Hartzers comment on growing deposits. He is dressing up as desirable what is actually a necessity
    I know its standard website practice to bag the RBA, but can anybody here refute the Debelle assertion that committed term funding (be it from overseas or not) is better for bank funding and liquidity stability than rolling 3 month TD’s.