Subscribe to all posts from this authorWestpac has raised it 5 year term deposit rate to 8%, from 6.75%. The next highest is 7.10%.
8% is 2% over the 5 year swap rate. Selling 5 year bonds to the institutional market would cost around 1.30%.
So Westpac is paying through the nose for retail deposits.
Let’s look at some other special deposit rates from the big 4.
Ubank (NAB in online drag) is paying 6.21% for 3 months, nearly 2% over the 3 month bank bill rate.
BankWest (part of CBA) is paying 6.01% for 6 months, nearly 1.5% over the 6 month bank bill rate.
CBA and Westpac are paying 6.80% for 1 year, more than 1% over the 1 year swap rate and about 0.10% more than they would pay wholesale investors.
All the big 4 are paying 7.00% for 3 years, 1.4% over the 3 year swap rate and about 0.20% more than they would pay wholesale investors.
No wonder they are complaining that their funding costs are going up.
But the real question is why are they competing so hard for retail deposits?
This chart is taken from the speech given yesterday to the Australasian Finance Banking Conference by Ric Battellino, Deputy Governor of the RBA.
It shows that banks have been running down their short term domestic capital markets issues (i.e. bank bills) and replacing them with deposits.
A lot of those bank bills are held by other banks and the bank regulator, APRA’s new liquidity rules that are going to be imposed next year sometime will not allow this degree of cross-holding.
Therefore the banks are going all out to capture “sticky” retail deposits.
CBA boss Ralph Norris said the introduction of new liquidity rules would cost around 7 basis points, but I have seen another analysis that puts the cost at 35bp.
Also retail depositors are lazy. Once they have you and the rates go down, they can count on a proportion of you not taking your money away (see story here).
Popularity: 21% [?]
