In August both the Australian and New Zealand Reserve Banks cut their respective official cash rates. Australia’s official cash rate has fallen to an historic low of 1.50% while New Zealand’s cash rate is now at 2.00%.
In both countries, though, the major banks passed on only a portion of that rate cut to borrowers and instead held back at least 10 basis points in order to, in many cases, boost term deposit interest rates. A summary of what Australia’s banks have done in terms of home loan rates can be found here and a summary of what New Zealand’s banks have done can be found here. Australian term deposit rates can be found here and New Zealand term deposit rates are here.
In both countries it would seem that banks are taking the opportunity to shore up the liquidity reserves that they are starting to require as a result of the Basel 3 reforms.
Essentially, the Basel 3 reforms are in the process of imposing stronger liquidity requirements on lending institutions. Banks are required to hold highly liquid assets (such as term deposits) equal to or greater than net cash outflow over 30 days. The coverage ratio became effective 1st January 2015 and is being stepped up as follows:
|1 Jan 2015||1 Jan 2016||1 Jan 2017||1 Jan 2018||1 Jan 2019|
In both Australia and New Zealand the major banks were very quick to announce their home loan and term deposit repricing decisions in the wake of the Reserve bank decisions, which indicates that the strategy had been carefully costed and planned beforehand.
Pressure on smaller players
In both countries the actions of the larger banks to increase their share of the term deposit market will put significant pressure on the smaller banking players, all of whom are far more reliant on term deposits to fund their home loan bases. While this is no doubt of concern to those smaller players, it will come as welcome relief to long-suffering savers! Keep an eye out for plenty of impressive term deposit offers over the next few months!