While Australia’s retail banks have spent much of the last 12 months complaining about the rising cost of funds, it seems the pressure is now abating.
According to a new report by Fat Prophets, Australia’s retail banks are currently in a very “enviable” position relative to their global peers.
“The general perception was that the higher cost of wholesale funds from international sources was responsible for the banks’ rising cost of funds and hence their inability (or unwillingness) to pass on interest rate cuts from the Reserve Bank,” Fat Prophet’s Greg Fraser said.
“But the real pressure point was in the cost of customer deposits.
“The Basel III banking rules necessitated a higher level of low risk assets such as customer deposits to ensure global banks have a greater degree of liquidity and safety. The Australian banks embarked on an aggressive and extended period of growth in customer deposits which was typified by very high interest rates for term deposits.
“Now that the banks have attained the necessary levels of customer deposits to satisfy the Basel III requirements, there has been a distinct easing in the chase for term deposits. The interest rates being offered for term deposits have slipped from above 5 per cent to 4.75 per cent.”
According to the report, that has given the banks some scope to lower mortgage interest rates without damaging their net interest margins.