Slowcoach banks cash in on rates

Extra money comes from savers

THE big four banks will get a short-term boost by dragging their heels passing rate rises on to term deposit holders, but the effect is likely to be short-lived, analysts say.

And an all-out fight for market share is looming next year as $250bn in fixed rate loans age out of their fixed period into a higher interest rate environment, with mortgage brokers poised to be the winners from a “broken” banking distribution model.

Analysts have noted that the big four have wasted no time in passing on official interest rate rises to their mortgage customers over the past three months, however a slower pass through of rates to savers means they will benefit from the differential in the short-term.

Jarden chief economist Carlos Cacho says the recent rate rises were benefiting the big four at the moment. “We’ve obviously seen the banks be pretty fast at putting the rate hikes through to the variable rate mortgages ... you’re definitely going to see a positive margin expansion in the near term.

“On the deposit side we’re seeing pretty selective deposit repricing so far from the majors. You haven’t really seen much repricing in the three to six-month products which tend to be more popular, so that’s going to give them a tailwind. Similarly on the atcall transaction accounts, online savers etc they’ve been pretty selective about repricing those. It’s certainly not across the board.’’

Morgan Stanley said while the differential will be a positive for the near-term, it was likely to flip. “Higher cash rates and the steep yield curve are shaping up as drivers of a meaningful margin tailwind for the banks,’’ the investment bank said. “However, the potential for a shift in the deposit mix from low-cost transaction accounts back to higher cost term deposits and an increase in term deposit rates relative to the cash rate are likely headwinds.

“While the major banks are now offering rates of less than 2 per cent for terms of 11 months or more, their shorter duration term deposit rates have actually increased less than the cash rate.

“While we expect term deposit rates to ultimately move up more than the cash rate, this has not yet happened for shorter-duration term deposits.”

S&P Global Ratings is also tipping a boost from rate increases. “Australian banks’ gross earnings should benefit from rising interest rates – and stay strong relative to global peers,’’ S&P analyst Nico DeLange said.

Mr Cacho said casting forward to early next year, he expected increasing mortgage and term deposit competition.

“We’re expecting over $500bn in fixed rate loans to expire in the next two years and that’s going to be a big refinancing event ... as people see their repayments go up by 40-odd per cent.

“And so I think competition in mortgages is going to be pretty intense. I also suspect that we’re going to start seeing, over time, that competition in the deposit space is going to increase.”