RBA Says Big Four Banks Responsible For Their Higher Funding Costs

Post by Sharat on March 26, 2010 · Under Australian Economy, banking, interest rates · Comment 

The Australian central bank has levelled an accusation at major Australian lenders saying that they are responsible for driving up their own funding costs by aggressively waging war with each other for retail deposits, forcing up savings rates in their effort to win customers.

The Reserve Bank of Australia released its Financial Stability Review, which suggests that conditions on the global wholesale funding markets have substantially calmed down  compared to its peak at the height of the global financial crisis.

The Reserve Bank of Australia (RBA) says there is continuing pressure on bank funding costs, in large part as a result of their decision to hike savings and term deposit rates to levels well beyond official market benchmarks.

The battle between the Big Four lenders during the last year to attract retail deposits has become especially intense, as they seek to reduce their reliance on volatile global funding markets.

The result of the deposit war has meant that perversely some term deposit rates are in fact higher than mortgage rates, the first time that has happened in over two decades.

“Reflecting a focus on what is perceived to be a more stable source of funds, banks have continued to compete vigorously for deposits by offering higher interest rates, especially on term deposits. The heightened competition for deposits has added to banks’ average funding costs.” the RBA said.

Major lenders finance as much of 60 per cent of their mortgage lending through retail deposits, which is felt to be the most stable source of funding.

CBA chief executive Ralph Norris said the war for bank deposits had eased in the past few weeks, but had been quite intense from November to February.


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