Deposit competition intensifies and margins suffer

Term deposit spreads, relative to wholesale rates, "turned against the banks" in October and November, according to Macquarie Research analysis.

Macquarie analyst Michael Wiblin issued a note last week showing that, with a few exceptions, the Big Four banks, as well as Bank of Queensland and Bendigo and Adelaide, left their term deposit rates unchanged from late October to the end of November.

During the same period the cash rate was cut by 25 basis points and swap rates fell by 50 basis points or more.

Westpac and National Australia Bank's term deposit rates for 90 days, one year, three years and five years were unchanged over that period.

ANZ dropped its one-year rate by 30 basis points but left all its other term rates unchanged. Commonwealth reduced several rates by 10 basis points.

Bendigo and Adelaide Bank and Bank of Queensland each cut their 90-day deposit rate by 20 basis points.

Wiblin's view is that this is evidence of a return to a more intense level of competition in the retail deposit market, brought on by the uncertainty of securing funding in the global capital market.

"Deposit pricing will likely be a drag on net interest margin," Wiblin said.

Those deposit-taking institutions with less need for retail deposits cut their TD rates harder in November.

Infochoice figures show that more than 30 institutions cut their term deposit rates in that month. Reductions in 90-day deposit rates were in the range of 10 to 25 basis points. Rates for 12-month terms fell by as much as 50 basis points.