- ANZ says inter-bank lending rates have not risen as fast as the market expected to end the September quarter.
- A recent uptick in deposit rates – which UBS attributed to household tax returns — may have been a factor in keeping funding costs low.
- ANZ said the banks may also have locked in debt funding ahead of time, to avoid the pressures they faced in the previous two quarters.
An increase in deposit growth as Australians banked their 2018 tax returns may have just helped ease the pressure on bank funding costs.
Analysis from ANZ shows there hasn’t been a sharp lift in funding costs for Australian banks to end the September quarter.
That marks a shift from the June quarter-end, when a spike in short term inter-bank lending rates was the talk of markets.
There was much speculation at the time that higher funding costs would be passed on to mortgage borrowers. And as it turns out, three of the big four banks have done just that.
And the core measure of bank funding costs — known as the Bank Bill Swap Rate (BBSW) — remains elevated.
However, it’s only edged slightly higher in the last few days after holding steady for most of September.
“The BBSW has been largely static for the last month across all tenors. Our expectation of a rise has not been met,” said ANZ rates strategists Martin Whetton and Jack Chambers.
They pointed to a recent increase in bank deposits, which may have helped alleviate the pressure on funding costs.
UBS analysis of last month’s private sector credit data from the RBA highlighted a small pickup in deposit growth, driven by Australian households.
“Household deposits growth picked up to 5.9% y/y, from 5.7%,” UBS said.
“Importantly, the deposit data is not seasonally-adjusted, so this seasonal rise in deposits could be related to household tax returns,” they said.
As credit growth continues to slow, the rise in deposits meant the banks’ funding gap (the difference between loans and deposits) fell for the first time since January.
The next set of monthly deposit data from the RBA comes out this Friday, and ANZ said it “may shed light on the non-move in BBSW”.
Another factor which can add to seasonal funding pressures is that banks often ramp up their bond issuance to lock in funding before quarter-end.
However, this particular quarter (ended September 30) coincides with the financial year-end of three of the big four banks — ANZ, Westpac and NAB.
And ANZ noted that “recent issuance has slowed, which is normal as banks hit their financial year ends.”
Whetton explained that banks have a “blackout” period just prior to releasing earnings when they are not allowed to issue debt. So they have gotten ahead on their bond issuance to avoid a last-minute rush.
“I suspect they issued enough so that the previous two quarters didn’t happen to them again,” Whetton told BI.
However, ANZ concluded that the banks’ desire to avoid quarter-end pressures by locking in their funding early “might result in a lift for BBSW over October”.
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