RBA warns: Bank deposit war will raise costs

Friday 26 March 2010

Article by Mozo

Australia’s leading retail banks may be pushing up their costs in a bid to provide customers with the best deals, the RBA has said.

The central bank’s Financial Stability Review revealed that the global financial markets had recovered significantly and that wholesale funding conditions had improved markedly.

Despite this, the RBA has warned that numerous banks are increasing their own cost bases to offer rates on savings and deposits that were some way above official market benchmarks, the Australian reported.

As a result, for the first time in two decades, some term deposit rates are now higher than mortgage rates – the major banks fund around 60 per cent of their mortgage books through retail deposits, the news provider added.

"Reflecting a focus on what is perceived to be a more stable source of funds, banks have continued to compete vigorously for deposits by offering higher interest rates, especially on term deposits. The heightened competition for deposits has added to banks’ average funding costs," the RBA said.

However, the report added that many banks have returned to profitability after a period of decline.

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