Westpac has poured cold water on the idea that the battle for retail deposits is easing by saying it intends to aggressively chase consumer savings as banks increasingly prefer stable sources of funding.
Over the last few months term deposits have fallen which led many to predict that the fierce battle to attract retail funding is fading.
Wholesale borrowing costs for banks have also hit their lowest level since 2009 as financial markets around the world become increasingly more optimistic about the outlook for the global economy.
Westpac has rejected the idea that competition will subside and says it intends to increase its ratio of deposit to loans and this time round most banks will resist the temptation to seek cheap wholesale funding.
Westpac CFO Alex Thursby says whilst there has clearly been a reduction in interest rates, competition remains intense particularly for online and reward savings accounts.
He added that Westpac in response to regulations designed to prevent a future credit squeeze would increase its ratio of deposits to loans.
The average ratio for Australian lenders stands at roughly 70 per cent with Westpac’s at 67.6 per cent during its last quarter.
”We would like to keep driving it higher, particularly if we think about the economic and funding conditions that make all the banks pay a lot of attention to it. We, like all banks, will continue to support that ratio, and over time growth in that ratio will mean that there will continue to be quite strong competition for customer deposits.” Mr. Thursby said.
In the last few months interest rates on term deposits have fallen, and whilst Mr. Thursby acknowledged this was the case he said competition remains intense because many banks prefer to avoid relying on wholesale funding instead as was the case just before the global financial crisis.
”All the banks I think will avoid getting back on the drug of over-reliance on wholesale funding to fund their lending growth,” he said.