Some would call it a margin-plumping exercise – the banks prefer to think of it as margin protection. Either way, it’s good for bank profitability.
Three of the four major Australian banks have stealthily reduced the interest rate on their term deposits. They might suggest they are getting a head start on the Reserve Bank, but the central bank is not forecast to cut rates for at least three to six months.
While interest rates for mortgage holders receive much of the attention, the often-older savers who rely on interest on their savings get less focus from the media.”, when the four major banks engaged in discounting mortgages to win customers and raised deposit rates to entice or retain clients, a peace appears to be settling on the sector.While consumers win when the banks battle for market share, the banks’ margins and profits get squeezed.
In many respects, net interest margins are a proxy for competition – the banks’ NIMs tend to fall during periods of competition, and vice versa when competitive tension eases.The Commonwealth and National banks attempted to stay out of the discounting fray to protect margins, but both felt the effect on their profits.She was responding to a report from the country’s competition watchdog that, she said, confirmed “New Zealand’s banking sector is uncompetitive and Kiwis are not being well served”.
In response to the reduction in term deposit rates in Australia, one of the big four privately pointed out that other bank lenders – including Macquarie Bank, AMP and Judo – have also crunched the rate on deposits over the past week.
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