5min read
PREVIOUS ARTICLE Succession law means kids migh... NEXT ARTICLE 'Stunning' surge in consumer c...

Regional and foreign banks have a chance to take on the big four banks as a price war over term deposits drives a convergence of savings and transaction accounts, a research company says.

More funds have shifted into high interest paying accounts combining savings and transaction functions as consumers seek versatility and greater returns for their cash, Datamonitor’s annual survey of 2,300 bank customers says.

Datamonitor senior analyst Petter Ingemarsson says the change could establish a new product category that may boost the market positions of foreign and regional banks.

“In the 1990s with mortgages there was the opportunity for new entrants to enter the market, and we saw it with high interest savings accounts,” Mr Ingemarsson said.

“What we’re seeing now is that the next focal point is in the area of retail deposits and combined accounts.”

The major banks’ big customer bases make them the best placed to offer combined accounts.

But Mr Ingemarsson said the big four banks may be reluctant to cannibalise their lower rate transaction accounts deposit base.

“Foreign players would have an advantage because they don’t have an extensive customer deposit base to cannibalise so they could offer these products and get new customers,” he said.

“Also the online factor makes the branch network factor largely irrelevant so the foreign banks can compete without having a large branch network for these products.”

Regional and foreign banks were the first to introduce online high interest savings accounts, he added.

But the market position of both regional and foreign banks has weakened over the past 12 months as a global liquidity squeeze in 2008 forced some foreign lenders to withdraw services from Australia.

High term funding costs saw regional players almost shut out of offshore wholesale funding markets and lose market share to the big four banks.

All local banks have sought to reduce their reliance on short-term wholesale funds and increase their reliance on retail deposits to fund their loan books as retail customers fled the falling share market for cash investments.

A price war for deposits has ensued to the point where market leader Commonwealth Bank (CBA) is no longer making money from deposits, according to bank analyst Brian Johnson of CLSA Asia Pacific Markets.

“CBA’s historic business was the retail deposit business and it doesn’t work anymore,” Mr Johnson said.

CBA’s treasurer Lyn Cobley said in June the retail deposit price war meant the bank could borrow funds at a cheaper rate in wholesale markets than from retail customers.

Datamonitor’s research confirms recent monthly data from the Australian Prudential Regulation Authority (APRA) that showed CBA’s share of household deposits rose from 25 per cent at April 30 to 29 per cent, or $124.56 billion, by May 31.

This increases to $140 billion once subsidiary BankWest is included.

A combined Westpac and St George had $100 billion in household deposits on their books at May 31, while ANZ Banking Group had $58 billion and National Australia Bank had $55 billion.

By contrast, APRA said foreign lender ING Bank (Australia) Ltd had $16.5 billion in household deposits, Bendigo and Adelaide Bank had $16.2 billion, Bank of Queensland had $13.6 billion and Suncorp Metway Ltd had $13.2 billion.