Bank loans have started to grow faster than deposits, increasing pressure to use more wholesale funding, says Moody’s Investors Service.
The ratings agency says how banks manage their funding and liquidity, as credit growth picks up, is a key credit sensitivity.
Moody’s expects any increased bank exposure to wholesale funding markets to be partly offset by increased holdings of liquid assets and improvements to maturity structures.
“Since the global financial crisis, Australian banks have markedly improved the stability of their funding and their holdings of liquid assets,” says Moody’s analyst David Yu.
“They have also targeted far more sustainable refinancing profiles.
“However, their structural reliance on wholesale funding remains a key sensitivity for their high ratings. Therefore, how they manage their funding and liquidity, as credit growth picks up, will represent an important rating focus.”
Since 2008, funding conditions for Australian banks have been supportive with deposit growth exceeding lending growth.
However, the growth rates for deposits and loans have started to converge.
As the following chart shows, the amount by which annual deposit growth has exceeded loan growth declined to 0.43 percentage points as of July this year.
And in dollar terms loans are growing faster than deposits.
At the end of July, total system loans were $2,002 billion, compared to total system deposits of $1,505 billion.
The convergence in growth rates has meant that the dollar amount for the net deposit shortfall (deposits minus loans) had risen by $34 billion from December 2013 to July 2014.
And this chart shows the impact on the major four banks as net deposits fall:
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