Higher fixed-term rates not likely to deliver the funding boost that lenders are looking for, experts say

Savers got their first good news in a while yesterday with the major banks announcing increases to deposit rates but experts warn it may not be enough to get people to put their money in the bank.

ANZ, ASB, BNZ and Westpac have all lifted term deposit rates with three out of the four banks focusing on an increase in the 18 month term.

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ANZ is now offering a term deposit rate of 3.6 per cent over 18 months with BNZ matching that and ASB topping it at 3.65 per cent.


While Westpac has offered up a special six month term deposit rate of 3.5 per cent.

The deposit rate increases are an unusual move by the banks in the wake of the falling official cash rate which was cut to a new low yesterday of 2 per cent.

Massey University banking expert David Tripe said banks were choosing to focus on deposits because of a pending shortage in retail money.

"It's because they are identifying there is a squeeze coming on the supply of retail deposits. They are planning ahead."

Banks need deposits to help fund their lending and in recent times lending growth has been far exceeding retail deposits on the back on New Zealand's booming property market.

Tripe said part of the problem was that people were putting their money elsewhere but banks were also facing increasing costs from wholesale funding where they raise money in the international market.

But he doubted the rate increases would encourage many people to go racing back to the banks.

"It won't generate a huge shift. If you are already geared up to put your money somewhere else it's not going to change that."

Tripe said the move was more psychological.

As much as anything it is designed to improve depositors attitudes towards the banks.


Tripe did not expect further cuts to the official cash rate to stimulate more deposit rate increases but said they probably wouldn't come down either which is what normally happens when the cash rate is cut.

John Kensington, head of financial services at KPMG which carries out a quarterly analysis of bank financial performance, said in the last three to four months the banks had seen very strong demand for borrowing while at the same time deposit rates had slowed up a lot.

He said people were putting their money into managed funds and the property market.

"There's been a real marked decrease in funds from retail depositors as people have used that money to go into the property market."

Kensington said the deposit rate increases were aimed at stimulating that side of the balance sheet.

But he also questioned whether it would be enough.

"That is the 64 million dollar question. I suspect not."

He also warned that rising deposit rates could be a precursor to banks having to lift mortgage rates as they feel a squeeze on their margins.