‘Sugar hit’: Banks benefit as savings rate rises lag mortgages

Macquarie analyst Victor German last week said deposit pricing was giving banks a “sugar hit,” at the same time as loan growth in their mortgage businesses slowed.

“In the short term, banks continue to benefit from highly lucrative retail deposit pricing, which will likely provide margin upside in the next six months,” German said in a note.

The gradual increase in deposit rates comes after the big four were flooded with savings during the pandemic, which limited the competition to attract funds from households.

The banks on Monday highlighted the various influences on deposit rates, and pointing to some of their offers.

An ANZ spokeswoman said: “ANZ considers several factors in making decisions around rates, including the impact on customers, the change in the official cash rate, business performance and competitive pressures.”

Meanwhile, Westpac’s consumer and business banking chief executive Chris de Bruin said: “We have increased deposit rates across a range of products this year including our flagship savings account Westpac Life where the majority of customers receive a variable interest rate of 1.85 per cent per annum.”

A CBA spokeswoman pointed to increases in various savings products in recent months, and said the bank wanted to support customers by increasing select deposit rates.

Investors, meanwhile, are weighing up the short-term boost from wider margins against signs of longer-term weakness in the mortgage market, where competition is fierce and growth is slowing.

Principal at fund manager Alphinity, Andrew Martin said deposit pricing trends were positive for net interest margins, as was the fact that households did not appear to have moved large sums to higher-interest products such as term deposits.

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“On paper, the half that the banks are in at the moment should be pretty positive. The deposit costs for the banks, in a relative sense, are still pretty good,” Martin said.

Money markets are betting there is a more than 90 per cent chance the Reserve Bank will on Tuesday raise official rates from 1.85 per cent to 2.35 per cent.

ANZ Bank’s head of Australian economics, David Plank, said markets were pricing in a peak in the cash rate of more than 3.8 per cent by the middle of next year, but he did not think the cash rate would go quite as high as that.

“If they’re having to push it up that high, then they are essentially being forced to push the economy sharply weaker in order to get inflation under control,” he said.