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Malaysian banks race to get deposits

Publication Date : 04-08-2014


Malaysian banks are racing to increase their stash of deposits amid concerns on rising loan-to-deposit (LD) ratios.

This comes after CIMB Group Bhd, the second largest lender, fixed its fixed deposit rates at 3.4 per cent for a 12-month tenure two weeks ago from 3.15 per cent previously.

Among the bigger banks, the rate offered is highest and above the latest inflation rate of 3.3 per cent as at June this year.

Analysts described the rate set by CIMB as aggressive and could trigger another round of competition for low cost funds.

“The aggressive move was a negative surprise as it could whip up another round of competition for deposits,” an analyst said.

The analyst said that both Malayan Banking Bhd (Maybank) and Public Bank Bhd may be forced to offer better FD rates to attract deposits, in order to meet their respective loan growth targets of 10 per cent to 12 per cent.

Fixed deposit rates have been inching up gradually since the Central Bank raised the overnight policy rate (OPR) by 25 basis points on July 14, 2014.

Maybank, which is widely regarded as the standard bearer, raised its fixed deposit rates by 15 basis points effective July 16 to 3.3 per cent per annum for a 12-month tenure. Public Bank Bhd’s 12-month deposit rate per annum is 3.35 per cent.

Most banks followed suit with varying rates for deposits between one month to 12 months.

Another analyst said that the rise in deposit rates by 25 basis points was expected.

“The base case for the OPR increase was 25bps, so it is expected that deposit rates would also go up by the same. Anything less than that would be something extra for banks to keep,” an analyst said.

The analyst however, is neutral on the impact of stiffer competition between banks following the revision in banks’ FD rates. “Liquidity goes under Basel requirements, which signals for banks to compete more competitively,” he said.

The race for fixed deposits, which is a source of cheap funds for banks, is due to the rising loans to deposit ratio (LD ratio) in the past five years. A rising LD ratio means that loans are growing faster than fixed deposits.

As at end-March 2014, Maybank’s LD ratio stood at 91 per cent, while Public Bank’s was 86.8 per cent, and CIMB Group’s at 89.4 per cent, indicating tightening liquidity positions.

Maybank’s LD ratio is the highest since September 2006.

A merchant banker said that Maybank, which has a 12 per cent target for loan growth in Malaysia for 2014, would have to expand its deposit base in tandem with loan growth, given its high LD ratio.

“To do that, it is likely to offer better rates for deposits, which then would lead to deposit rate competition within the industry,” said a merchant banker.

CIMB Research said that banks that were not willing to compete on deposit rates would have to settle for slower loan growth due to the inability to secure adequate funding for that.

For the five-year period, the banking sector’s LD ratio has climbed from 74.4 per cent in March 2009 to 80.7 per cent in March 2014. This is while deposits grew at a slower pace at a compounded annual growth rate (CAGR) of 9.4 per cent than the 11.2 per cent rate for loans.

As per Bank Negara statistics, the industry’s FD rates on a 12-month term have been on an uptrend from 2.50 per cent per annum in January 2010, to 3.15 per cent in May 2014.

Although analysts project loan growth to be slower this year, within the 9.5 per cent to 10.5 per cent range, they anticipate the industry’s total deposit to grow at an even weaker growth rate between 8 per cent and 9 per cent.

The slower expansion of deposits could be due to alternative investment options, continued strong interest in the property market, and low level of interest rates, which could deter consumers from leaving their money in the banks as it is a less attractive option.

“At the moment, the property market is seen as more attractive to invest in, especially for retail investors.

“They rather invest in property rather than in the bank or in the stock market,” an analyst said.


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