Deposit war shows no sign of abating: KPMG

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The ongoing competition for deposits is showing no sign of abating as New Zealand’s banks keep looking for domestic money and reduce their reliance on offshore wholesale funding.

Tuesday, April 27th 2010, 5:33PM 3 Comments

by Paul McBeth

Over the past year banks have reduced their offshore funding to 38% from 39% a year earlier after the global financial crisis sapped their ability to tap international credit lines, according to the KPMG Financial Institutions Performance Survey. That works out at about $3 billion for every percentage point of movement, and KPMG's head of financial services Godfrey Boyce told a media briefing in Wellington that it forced the banks to offer attractive premiums.

"Retail money is now more than expensive that wholesale" with 90-day bank bills offered at 190 basis points above wholesale rates, Boyce said.

Though the banks have attracted money away from finance companies and fund managers, that there is not enough money for country's major lenders to keep attracting retail deposits.

"It's a challenge - we don't have that kind of wealth and it's not clear where the money's going to come from," Boyce said. "In this economy, a lot of money is in property, and fundamentally, New Zealanders like property and I don't think that's going to change."

New Zealand banks' moves to source more money locally coincided with tougher liquidity and prudential requirements from the Reserve Bank, which requires licensed lenders to fund 65% of their total assets through retail or short-term wholesale avenues.

All of the major lenders had achieved the 65% core funding ratio requirement by the April 1 deadline, though Boyce said there were fears they might not be able to achieve the 75% level in 2012 that has been flagged by the regulator.

"The major banks are comfortable to get to the proportion of on- and offshore funding" that they have attained, and will keep working to tap more local money, he said.

Paul is a staff writer for Good Returns based in Wellington.

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