Bank profit margins are already benefiting from rising interest rates, analysts say, as returns on most retail term deposits languish well below those offered to bigger investors.
As the outlook for margins improves, bank watchers say lenders are unlikely to raise mortgage rates by more than the Reserve Bank if it raises the cash rate this Tuesday, as expected.
A month after the first cash rate rise in 11 years, Macquarie analyst Victor German said lenders were getting a strong “tailwind” from not lifting advertised retail term deposit interest rates as much as wholesale or negotiated rates.
For example, he said one-year term deposits from major banks were paying about 20 to 65 basis points, compared with wholesale rates of more than 2.5 per cent
“We think the tailwinds that the banks are currently getting from their deposit books are strong. We believe that bank margins have bottomed, and based on the current trends, we think there’s upside risk to their near-term margins,” German said.
“Given the current tailwinds, I think it’s less likely that banks will re-price mortgages. I think they will follow the cash rate.”
Chief executive of fixed income broker Curve Securities, Andrew Murray, said wholesale rates on term deposits were much higher than the “extraordinarily low” retail term deposit rates.
“Maybe they [banks] feel that they’ve got enough retail money and they don’t want anymore. But at some point it will probably mean there’s got to be a shift up in some of those retail rates,” Murray said.
Some banks are offering higher rates, with Mozo last week saying AMP Bank and Judo Bank’s rates were competitive, while Commonwealth Bank is offering a special 18-month term deposit rate.