UBank deposit rates coming back to the pack

National Australia Bank chief executive Andrew Thorburn is moving away from the strategic focus of his predecessor in retail banking. Last month the bank gave up its price leadership among the big banks in the mortgage market. It is also trimming back the high deposit rates offered by its UBank subsidiary.

In response to the Reserve Bank's 25 basis point May cash rate cut, NAB cut its standard variable rate by 20 bps. In the process its gave up the price leadership among its peers that it had used in its marketing since it launched its Break-up campaign in 2011.

Another sign that margins are a priority ahead of market share is the re-pricing of deposit rates.

According to Macquarie Securities, UBank's term deposit rate margin over the other big banks' TD rates has fallen from 100 bps at the beginning of 2012 to around 30 bps today.

Macquarie estimates that, as a result of the re-pricing, UBank's deposits have fallen from a peak of A$18.1 billion in March last year to $16.8 billion currently.

It also estimates that the re-pricing of UBank's deposit book will generate additional earnings of around $40 million.

In a note published last week Macquarie speculated that NAB might even re-introduce some of the retail bank fees it cut in 2011, as part of its "more rational focus on creating longer-term shareholder value."

Weighing against such a move would be the bank's concern that it would be criticised as untrustworthy for offering benefits and then taking them away after a few years.