Deposit rates set to fall, as NAB issues a new hybrid

Co-founder of the Switzer Report
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The big news out of the Commonwealth Bank’s result last Wednesday wasn’t that it ticked all the boxes with positive jaws (rate of revenue growth faster than expense growth), improved productivity, higher net interest margins and a fall in provisions. The big news was that that CBA is no longer going to play the “retail deposit game” and that deposit rates are coming down.

The market gave the result and the news the “thumbs up”, with CBA hitting a new all time high and rising from $64.83 to $67.03 over the week - an increase of 3.4%.

Post GFC – we have had it pretty good with deposit rates

In the aftermath of the GFC, wholesale funding markets dried up. Banks were forced to aggressively seek funds from “retail” investors such as SMSFs. Prior to the GFC, the term deposit “blackboard special” was being issued at a margin of around 50 basis points (0.50%) below the bank bill rate. Today, it sits at a margin of around 130 basis points over – with a 90-day term deposit paying 4.3% compared to the 90-day bank bill rate at 3.0%.

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