Kelly promotes a deposit culture at Westpac
Westpac chief executive Gail Kelly believes her bank needs to develop more of a deposit culture to meet changes in regulation and customer behaviour."Banks have traditionally been very strong on lending," she told analysts at yesterday's half-year results announcement.Staff performance measures and remuneration have been changed to target higher deposit inflow. Westpac bankers are being encouraged to think of the "main bank" relationship as one based on transaction and savings accounts, not home loans and credit cards.All banks have set out to reduce their reliance on wholesale funding since the financial crisis, by boosting customer deposits, but to date Westpac has lagged behind its big bank rivals. According to RBS, 53 per cent of Westpac's funding comes from customer deposits (the balance is 16 per cent term wholesale debt, seven per cent equity, 22 per cent short-term wholesale debt and the rest is in securitised assets).In comparison, ANZ's funding is 61 per cent from customer deposits, Commonwealth Bank's is 60 per cent and NAB's is 54 per cent.Kelly, who yesterday described the deposit market as a "war zone", is in catch-up mode. The likely outcome will be tight margins and modest earnings growth for some time to come.Westpac's Australian financial services division, which includes Westpac retail and business banking, St George and BT Financial Group, reported cash earnings of A$1.9 billion for the six months to March - an increase of three per cent on the previous corresponding period but three per cent down on the September half.The division's net interest margin fell six basis points, to 2.02 per cent, between September and March.The division's mortgage portfolio grew five per cent year-on-year and two per cent half-on-half. Business lending was flat.Deposits increased 12 per cent year-on-year and five per cent half-on-half.Kelly said the aim was to have deposits growing ahead of system and mortgages growing at close to system. She said the bank was looking to do more SME lending and deposit-taking.She said it required a careful balance to get good deposit inflow without cutting into the margin too much, given the highly competitive nature of the deposit market.It is a balance the bank struggled to get right during the half. While term deposits grew strongly (up 16 per cent over the six months to March in the Australian business), at-call deposits fell six per cent. Across the group the rise was 13 per cent in term deposits and a decline of one per cent in at-call deposits.While the bank has made progress in changing its deposit mix, it is wary of the very high rates on offer from some banks.Phil Coffey, the bank's chief financial officer, said that "5.6 [per cent], 5.8 [per cent] term deposits for six months is irrational. What about six per cent at-call?"We'd rather see if we can get some more normality in the yield curve… and so we have definitely been comfortable shying away from some of the most price sensitive, online at-call offers."Kelly said the bank's "strong productivity focus" would continue. The bank