Mid-tier lenders ‘had no choice but to
follow majors’



The Australian
12:00AM August 9, 2016
MICHAEL BENNET
Reporter
Sydney
Mid-tier lenders had no choice but to follow the major banks and hold back
the Reserve Bank’s full rate cut from mortgage holders as large licks of their
funding can’t be repriced down and depositors demand a return on their
funds, according to Bendigo and Adelaide Bank.
After the big four banks held back between 11 and 15 basis points of the
RBA’s cut, Bendigo, Bank of Queensland, Suncorp, ING Direct and ME
moved their rates in similar fashion rather than use the opportunity to win
customer goodwill.
Stockmarket-listed group MyState, which includes The Rock, yesterday also
cut variable home loans by 10 basis points and lifted 12-month term deposit
rates 20 points.
The majors also increased 12 to 36-month term deposit rates, a move that has
not been followed by all lenders, including Bendigo.
The moves by the smaller lenders continue the trend of following the majors
rather than taking the opportunity to grab market share, partly because of
their more onerous capital requirements, more expensive funding and lower
efficiency. Small banks also often rely more on deposits for funding and
when official interest rates fall, earnings on deposits and equity decrease.
After Bendigo cut mortgages by 10 points, managing director Mike Hirst
yesterday told The Australian that banks needed to better explain that they
“don’t actually fund themselves at the cash rate” but from deposits and
wholesale funding markets.
“The costs of wholesale funding has gone up and the costs of deposits hasn’t
gone down,” he said.
“The second thing is banks have a lot of transaction accounts and those sorts
of things that don’t earn high interest. So you just can’t reprice it (down with
the cash rate). It’s a simple fact. It can’t go down by 25 (points), which is
how you end up with 10 (point cut to mortgages).”
Reporting a 2 per cent decline in profit, Mr Hirst said the biggest issue facing
banks was the need to “actually explain what it is they do” of intermediating
between depositors and borrowers.
“Depositors typically want to lend a deposit for less than two years, but
borrowers want to borrow for 25 years. The only way that happens is banks
look after that maturity transformation,” he said. “To do that, banks need to
charge a margin. That’s how they earn the money to do all of that.”
To attract funding, Mr Hirst said banks needed to pay depositors decent
interest rates otherwise they would put money elsewhere. He said while the
major banks may be trying to lengthen their funding profile by offering
attractive 12 to 36-month term deposit rates, customer typically did not like
to lock away money for more than a year. On Friday, the RBA revealed 12 to
36-month deposits made up less than 2 per cent of bank funding.
“We hear the issue around potential deposit wars coming up but we look
back at our past experience through the GFC when that happened and what
we were able to do through that period and I think it’s testament to our
network to be able to continue to grow that deposit base without hugely
impacting on margins,” he said.