by Paul McBeth
Yields on term deposits have jumped to between 100 and 150 basis points higher than wholesale yields, according to central bank Governor Alan Bollard's latest monetary policy statement. That's up from being 50 points below wholesale yields in the middle of 2008.
"Increased competition among banks, non-bank deposit takers and corporate bond issuers for deposit funds have all contributed to the rise in deposit funding costs," Bollard said in the report. "Pressure on banks to maintain or grow a retail funding base - seen as a more stable source of funding during times of crisis - has played a role in encouraging increased competition in this area."
As deposit rates have climbed, the cost of offshore wholesale funding has eased as government bonds fell in line with improvements in global credit conditions.
In recent weeks, competition in deposit rates has shifted from short terms, which are considered to be close to wholesale funding as customers tend to roll-over their investments, to longer terms, despite the stiffer competition from non-bank deposit takers which have to offer higher rates to attract customers from the relative safety of a bank.
Complicating this is the extension to the government's extension to its retail deposit guarantee scheme until the end of 2011. From October, when the existing scheme ends, banks and NBDT will have to pay a fee of between 15 and 150 basis points, dependent on their credit rating, to remain covered by the guarantee.
Paul is a staff writer for Good Returns based in Wellington.
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