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Savers looking for a better rate turn to Macquarie, ING

Ayesha de Kretser
Ayesha de KretserSenior reporter

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Smaller banks are stepping up the battle to woo depositors by increasing their rates quicker than the cash rate, but the big banks’ share of the deposit market has shrunk since the Reserve Bank of Australia began its tightening cycle.

ING Australia became the latest bank to pass on more than the RBA’s latest quarter-percentage-point cash rate increase, as soaring funding costs in wholesale markets and more competition for deposit funding mean banks might start to decide whether to slow lending growth or sacrifice margins.

Big banks are losing share as deposit wars heat up. Ryan Stuart

ING said it would increase its savings maximiser account deposit rate by 0.45 of a percentage point to 4.05 per cent per annum from October 11 for balances up to $100,000, a rate three times higher than it was six months ago, Rate City data shows.

The rate tops Macquarie’s introductory 4 per cent-per-annum savings deposit offer for new customers for the first four months on balances up to $250,000 and its ongoing rate, which increased by 0.45 of a percentage point to 3.2 per cent and its one-year term deposit rate of 3.8 per cent.

Canstar’s analysis of the latest monthly authorised deposit-taking institutions in APRA statistics showed the big four banks had gone backwards in terms of their share of household savings.

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“We can see that the big four banks’ market share of household deposits has gone from 75.6 per cent in March 2019 to 73.4 per cent in August 2022,” said Canstar’s Steve Mickenbecker.

“A lot of that has gone to the likes of Macquarie and ING in the second tier with their very competitive offerings.”

The pace of decline has accelerated since the RBA started raising interest rates in May, the data showed, coming off recent highs.

The shift by big banks to fund more of their home loans through deposits is still giving the majors a healthy lead over their non-bank counterparts and even second tier rival, with brand status holding back players such as Judo, whose rates for four and five year term deposits trump rivals and given its ADI status sees its deposits up to $250,000 guaranteed by the government.

“The majors normally fund home loans 50 per cent via retail deposits and 50 per cent in wholesale, but at the moment that’s around two thirds funded in the retail market.

They’re earning big margins on that - with the cash rate up 2.25 per cent, and they’ve only gone up about 1 per cent on base rates on promotional accounts,” Mr Mickenbecker said.

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“There’s a big fat margin of 1.25 per cent and because they’ve got so much in deposits at the moment, they don’t feel the level of desperation to pass it up. The time will come when retail deposits become a much bigger deal as wholesale markets get hotter and hotter.”

Morgan Stanley analyst Richard Wiles said moves by the banks to withhold rate increases on most savings products and shorter-term deposit rates will provide a boost to their net interest margins.

“Our deposit-pricing tracker shows that most of the majors have increased rates on their bonus or reward savings accounts by 50 basis points or more since the RBA’s September rate hike, and that rates on these products are broadly in line with the cash rate,” Mr Wiles said.

“However, they have not yet lifted rates on their standard online savings accounts, while shorter-duration term deposit rates have only increased by an average of 0.20 per cent.”

He agreed that the “non-major banks have generally been more competitive on deposit pricing”.

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Westpac has been the outlier in terms of its deposit mix being reliant on higher rate term deposits, said Evans and Partners analyst Azib Khan, deriving a lower percentage of funding from low-rate sensitive deposits than Commonwealth Bank and National Australia Bank, “providing Westpac’s NIM with less leverage to a rising cash rate.”

However, Westpac disputed the research saying its hedged, non-rate sensitive deposits lag CBA by only 1.4 per cent and NAB by 3.4 per cent as a percentage of overall Australian deposits, while term deposits as a percentage of the overall matched NAB’s at 20.1 per cent in the March reporting period.

And as customers start to shop around for better deposit rates, as well as mortgage rates, there are growing questions over how much the big banks will have to compete and offer better deals, given the margin implications of having to seek wholesale markets funding.

    Ayesha de Kretser is a senior reporter with The Australian Financial Review covering the aviation and tourism sectors. She has previously reported on banking, mining and commodity markets. Connect with Ayesha on Twitter. Email Ayesha at ayesha.dekretser@afr.com.au

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