The retail deposit market is dysfunctional

In marked contrast to most other approved deposit taking institutions, Bank of Queensland has reduced the proportion of retail deposits in its funding mix over the past six months. Retail deposits made up 48 per cent of the bank's funding at the end of the February half, down from 49 per cent in the previous corresponding period.

Deposit growth in the half was five per cent, compared to system growth of eight per cent.

BOQ chief executive David Liddy said the bank had slowed the growth in deposits to protect its margin. He said: "We had expected that the retail deposit market would have normalised but competition is increasing. Pricing is dysfunctional.

"We don't expect any relief there. In contrast, the wholesale market is improving."

BOQ increased its net interest margin from 1.79 per cent in February last year to 1.85 per cent in August and 1.97 per cent in the latest half.

Putting the brakes on retail deposits has not meant a slowdown in lending. The home loan book (including securitised mortgages) grew from $20.6 to $21.6 billion in the six months to February - an annualised growth rate of 9.8 per cent.

The real surprises were in the commercial loan and lease finance books, which grew in aggregate from $7.3 to $8 billion over the half, at an annualised rate of more than 19 per cent.

That is another contrast: while other banks have had little or no increase in the commercial books, BOQ has been going for it.