Relative cost of funds rising for banks

Funding costs for banks, relative to the cash rate, "increased further over the past quarter, driven primarily by developments in deposit funding", the Reserve Bank of Australia said in its quarterly Statement of Monetary Policy, released on Friday.

The RBA did not provide an estimate of the overall rise in the cost of funds, but surveyed pricing trends in a range of liability categories.

It said the average interest rate on the major banks' at-call deposits (including online savings, bonus saver and cash management accounts) "has risen further, relative to the cash rate" over the last quarter.

The RBA said the spread of term deposits to wholesale benchmark rates "remains at historically high levels", even though the average rate offered on the major banks' term deposit specials fell by about 65 basis points over the quarter.

Mark Joiner, finance director of National Australia Bank, told the Senate's economics committee on Friday that "by far the biggest increase in the cost of funds [is] coming from retail deposits."

The RBA said that spreads on newly issued bonds were around 10 basis points to 20 bps more than the average cost of banks' outstanding stock of bonds. Banks have issued around A$29 billion worth of bonds over the last quarter, with issuance picking up since then.