(15th July 2011 – Australia) The issue of bank funding strategies has become central to competitive performance in Australia’s lending markets during and post the Global Financial Crisis. East & Partners has developed an independent monitor known as The Deposit Funding & Debt Index which will be issued monthly and is being released today.East and Partners has formed a set of key analytics based on monthly deposit and
lending data produced by APRA which we believe adds
significant value to the way individual deposit takers and lenders diagnose and
monitor their competitive performance. These include market share measures in
deposit taking and business/retail deposit volume ration among others.
Traditionally, Australian banks have looked to offshore capital markets for 60
percent of their funding requirements, with the domestic deposit market
representing 40 percent of overall funding needs. In Easts’ view however, the
banks have worked well to reverse their dependence on capital markets over the
past two years and now take 60 percent of their total funding from the domestic
deposit market.
Key Deposit Funding & Debt Index Highlights:
-
The Deposit Funding Index (DFI) business banking
ratio has reached 1.25, up from 1.15 a year ago; i.e. 25 percent more in
deposits is being taken from business than is being lent back to business
customers. -
There are significantly lower DFI ratios in
retail (a market-wide average of 0.44) compared to business markets (1.25);
i.e. banks are taking less than half in deposits from retail/consumer
customers than is being lent back into the mortgage market. -
The Big Four domestic banks achieved a collective
76.9 percent of business deposits in May versus a collective 70.0 percent
share of business lending. -
Small businesses could be seen to be supporting
big business’ lending through the banks (the research has shown institutional
scale customers are borrowing far more than they are depositing). - In the business market, the two big retail banks (Westpac and Commonwealth
Bank) have the highest DFI scores; i.e. they are taking in more money than
they are lending out (Figure 1). However in the retail market, these same
banks are lending out far more than the amount of deposits they are taking in
(Figure 2), indicating active reallocation of deposit funding from business
customers to mortgage lending is taking place.
Figure 1: Business Deposits/Business Loans
Figure 2: Retail Deposits/ Retail Loans
 
Paul Dowling, East & Partners’ Principal Analyst said “We are seeing major
imbalances in these flows even within the business banking sector. SMEs for
example had a DFI ratio in May of 2.13 – they are deposit funding over twice
their borrowings”.
About East & Partners’ Deposit Funding & Debt Index
An ongoing, monthly report monitoring the area of deposit funding and lending
across Australia’s banking system. Based on data sourced from the Reserve Bank
of Australia the data is subjected to a set of standardised analysis run by East
& Partners to produce the Index’s set of ratio indicators. The report covers
business versus retail deposit volume ratio, the ratio of deposit versus lending
by bank by market segment and market share.
For more information or to interview our Principal Analyst Paul Dowling please
contact:
Sian Dowling
Marcomms & Client Services
East & Partners
t: +61-2-9004 7848
m: + 61-420 583 553
e: sian.d@eastandpartners.com