Big banks double dip with KiwiSaver
(13 December 2011 — New Zealand) It has been alleged that KiwiSaver cash funds run by the big banks have over half a billion dollars in deposits with their parent banks, but KiwiSavers are not getting the same rewards as other depositors.
KiwiSaver providers are saying the scheme is less profitable than expected, but the big banks are able to borrow money from the schemes and on-lend it, that is about NZ$560 million in total – for a tidy profit.
Some bank KiwiSaver cash funds invest in deposits at a range of banks, but the KiwiSaver cash fund with the largest deposits in its parent bank is ASB's with just under NZ$380 million invested at the end of March.
Because ASB has chosen to track the 90-day bank bill rate rather than its term deposit rates it earns a higher margin on KiwiSaver cash than it does from ordinary term deposit investors.
There has been stiff competition in the term deposit market as banks build their deposits. All year the 90-day bank bill rate has been lower than ASB's 90-day term deposit rate, on which, unlike KiwiSaver, no annual management fees are charged.
In a statement, ASB's Catherine McGrath, said there were good reasons why term deposit customers are paid more.
'The 90-day bank bill rate is lower than the retail term deposit rate. There are a couple of reasons for this,' she said.
'Firstly the 90-day bank bill rates are closely related to the OCR level, and since the global financial crisis, the Reserve Bank has reduced the OCR to its current historic low of 2.5 percent.
'As a result the return on the ANZ 90-Day Bank Bill Index is currently lower than historic levels. As interest rates rise, the returns on the 90-Day Bank Bill Index and the ASB KiwiSaver Bank Deposit Fund will gradually increase.'
Secondly, she said, government rules introduced following the crisis don't allow banks to count any deposits from financial institutions (including managed fund providers) towards their core funding ratio. This is because the whole deposit could be moved away from a bank overnight, by the decision of the scheme manager.
This, she said, has also driven increased competition between banks to attract retail deposits with competitive interest rates.
In the year to the end of October, the ASB KiwiSaver cash fund returned 2.68 percent after fees but before tax compared to 3.26 percent by the ANZ and National Bank cash funds, and 2.88 percent by the Westpac cash fund.
Some bank KiwiSaver cash funds invest in deposits at a range of banks, but the KiwiSaver cash fund with the largest deposits in its parent bank is ASB's with just under NZ$380 million invested at the end of March.
Because ASB has chosen to track the 90-day bank bill rate rather than its term deposit rates it earns a higher margin on KiwiSaver cash than it does from ordinary term deposit investors.
There has been stiff competition in the term deposit market as banks build their deposits. All year the 90-day bank bill rate has been lower than ASB's 90-day term deposit rate, on which, unlike KiwiSaver, no annual management fees are charged.
In a statement, ASB's Catherine McGrath, said there were good reasons why term deposit customers are paid more.
'The 90-day bank bill rate is lower than the retail term deposit rate. There are a couple of reasons for this,' she said.
'Firstly the 90-day bank bill rates are closely related to the OCR level, and since the global financial crisis, the Reserve Bank has reduced the OCR to its current historic low of 2.5 percent.
'As a result the return on the ANZ 90-Day Bank Bill Index is currently lower than historic levels. As interest rates rise, the returns on the 90-Day Bank Bill Index and the ASB KiwiSaver Bank Deposit Fund will gradually increase.'
Secondly, she said, government rules introduced following the crisis don't allow banks to count any deposits from financial institutions (including managed fund providers) towards their core funding ratio. This is because the whole deposit could be moved away from a bank overnight, by the decision of the scheme manager.
This, she said, has also driven increased competition between banks to attract retail deposits with competitive interest rates.
In the year to the end of October, the ASB KiwiSaver cash fund returned 2.68 percent after fees but before tax compared to 3.26 percent by the ANZ and National Bank cash funds, and 2.88 percent by the Westpac cash fund.
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