1 Comment 1 Commentby Jenny Ruth
"Banks are experiencing strong deposit growth with annual growth running close to 9% in October," the central bank says in its latest monetary policy statement.
"This equates to close to $13 billion in extra deposits, taking the stock of retail deposits to about $160 billion," it says.
At the same time, credit growth has been "very tepid" since the middle of 2009.
"The stock of loans and advances for registered banks is approximately $320 billion and has barely risen over the past 12 months."
Between October last year and October this year, loans and advances rose just 1.5%, or just under $5 billion, reflecting the weak economy, global market uncertainty and pressures on households and businesses to reduce debt.
"If current trends in deposits and credit continue, only a modest level of wholesale term funding will need to be raised over the coming year," the Reserve Bank says.
It estimates banks have about $15 billion of maturing core funding over the next 12 months or so and, if credit growth remains subdued, most of that could be met from retail deposits.
Bank funding costs have been relatively steady over the last 18 months but they are currently nearer the top end of recent experience, driven by higher long-term wholesale funding costs.
"Recent deals transacted in international funding markets have been particularly costly to banks, suggesting significant upward pressure at present," the central bank says.
It expects the pricing pressures on bank funding to remain high over the foreseeable future and that could eventually lead to higher retail interest rates.
"Should wholesale term funding markets remain problematic well into next year, there is the risk of local banks tightening lending conditions or upward pressure on interest rates faced by domestic firms and households."
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