One fifth of deposits 'no interest'

Banks are making mischief with deposit rates to protect their interest margins, but must be running out of options if the latest RBA analysis is any guide.

Prior to the most recent reduction in the cash rate in July, the major banks reported in June 2019 that they had "paid no interest on just under 10 per cent of the value of their (retail and wholesale) deposits," the Reserve Bank said in its quarterly Statement on Monetary Policy.

"This share is estimated to have increased only marginally since February.

"The share of deposits that paid some interest, but less than 50 basis points, was also a little under 10 per cent in June (up from around 5 per cent of deposits in February)," the RBA said.

Banks are also doing what they can to protect margins on the asset side.

Following the reductions in the cash rate beginning in June, "lenders reduced their standard variable rates on housing loans by an average of 44 basis points - 23 basis points in June and 21 basis points in July," the RBA said.

The extent of passthrough was similar across different types of banks.

The average interest rate paid on outstanding variable-rate loans in the RBA's Securitisation Dataset decreased by 23 bps in June, the same as the average reduction in SVRs announced by the banks.

"Preliminary data suggest that actual rates paid on new loans decreased by more than the SVR decreases in the June quarter for some banks."