Saving for a rainy day?

Commonwealth Bank and Westpac have stormed to the lead in bank deposits as Australians continue to hoard their cash

BY JOHN PHILLIPS

February 5, 2010

The now infamous but more understood Global Financial Crisis spooked investors into overweight cash asset allocations for safety in recent years, but new figures show this is beginning to ease.

A total $449 billion in retail deposits was held by banks operating in Australia in December 2009, an annual increase of $36 billion, reverting back to the historical bank deposit growth average pre the GFC of about 10 per cent.

This compares to the 24.1 per cent, or $80 billion jump to $413 billion during 2008, as uncertainty surrounding the performance and security of higher yielding assets were sold.

Depositors though favoured the big banks over the smaller Tier 2 banking rivals, even after the Federal Government deposit guarantee created a security blanket of up to $1 million, regardless of the Australian Deposit-taking Institution (ADI) holding the funds.

The big four banks with 82.1 per cent controlled retail deposit market share at the end of 2009, the same level as in 2008, but well ahead of the 67.6 per cent in 2007, before the Westpac takeover of St. George and the Commonwealth Bank's gobbling up of BankWest.

The outcome is that the Commonwealth Bank remains the dominant player, holding almost one in three bank deposit dollars in Australia, or 31.3 per cent.

Westpac with 23.6 per cent is the second most dominant, which means the two biggest banks by market share in Australia hold 54.9 per cent of bank deposits.

Shed a tear for Tier 2

Australia and New Zealand Bank with 13.8 per cent and National Australia Bank with 13.2 per cent pale in comparison to the 'big two', leaving Tier 2 banks and foreign banks operating in Australia struggling to attract deposits.

The impact is Tier 2 Australian banks hold just 11.4 per cent market share in 2009, compared with 20.4 per cent two years earlier, with foreign banks equally struggling with just 6.5 per cent, almost halving from 12 per cent over the same period.

Take for example the fifth biggest bank retail deposit holder, ING Direct, with just four per cent market share, the same as 2008 but well down from the 5.2 per cent in 2007.

Bendigo and Adelaide Bank (3.7 per cent), Bank of Queensland and Suncorp (3.1 per cent) are struggling to compete, with these smaller banks having a heavy reliance on retail deposits to fund lending books, as wholesale funding is more expensive due to lower credit ratings.

Citigroup holds just 1.1 per cent market share, with HSBC at 0.9 per cent and Macquarie Bank with 0.8 per cent market share.

High deposit rates and continued marketing campaigns have not helped AMP Bank (0.3 per cent), Rural Bank (0.3 per cent), ME Bank (0.2 per cent) or Rabobank (RaboPlus 0.2 per cent) increase market share by any significant amount.

The deposit guarantee has been a success in making depositors feel more secure about their cash, but only if that cash is held in one of the big four banks.

John Phillips is a retail banking analyst