Analysts say banks’ gains from rate hikes are easing
The benefit to banks of rate hikes is diminishing as lenders compete for funds and consumers shift billions of dollars from low-yielding accounts to higher-yielding savings accounts and time deposits.
As Reserve Bank Governor Philip Lowe said the central bank was closer to a “pause” in its rate hikes, analysts said competition between banks for household deposits was intensifying and more people were putting their money in higher-yielding deposits killed.
This is driving up banks’ funding costs, while lenders are also struggling to pinch rivals’ mortgage customers amid a funding boom.
While bank profits have benefited from the sharp rise in interest rates since May, Credit Suisse analyst Jarrod Martin said the profit boost banks have received from each rate hike has waned.
“You have competition on the assets side of the balance sheet and on the liabilities side of the balance sheet. It’s a bad environment for bank revenues,” he said.
Many current savings rates are still low, but rates on bonus savings accounts have risen sharply and the Bank of Queensland last week began offering an interest rate of over 5 percent on one of its accounts. Martin said a 5 percent interest rate is a “key price point that consumers will be chasing” and more money was flowing into higher-yielding savings accounts or time deposits.
Increasing competition for deposits is one of the reasons many analysts believe banks’ net interest margins have peaked — funding costs versus banks’ lending fees. In a recent note, Martin said that while margins can peak at different times for different banks, “in our view, the benefits of rising interest rates for the sector are all but gone.”
Morgan Stanley analyst Richard Wiles also said this week that the “tailwinds” that fueled a cycle of earnings gains for banks over the past year are now underway and bank stocks are more likely to outperform the ASX 200 in the month would underperform in 2023. “Mortgage refinancing and discounting have increased while deposit price advantages are waning. This increases the likelihood that big bank margins will peak earlier and at lower levels,” Wiles said.
https://www.smh.com.au/business/banking-and-finance/bank-gains-from-rate-rises-all-but-done-amid-fight-for-deposits-20230308-p5cqeh.html?ref=rss&utm_medium=rss&utm_source=rss_business Analysts say banks’ gains from rate hikes are easing