Billions of dollars found its way out of equities into attractive term deposit rates after the GFC. It shored up bank balance sheets when wholesale funding was expensive, but it also gave investors positive real rates of return, and satisfying absolute rates over 5%.
In presenting the CBA's results to December 2012 this week, CEO Ian Narev signalled a change in attitude which will push down his bank's competitiveness. CBA will use cheaper wholesale funding in preference to more expensive retail deposit funding. Narev said: "What we will continue to do is make sure that we're not writing deposits that are eroding value to shareholders."
CFO David Craig said, "We think it would be very silly funding all of our growth trying to compete in an incredibly hot retail deposit market, and hurting our shareholders by taking more expensive funding when there’s cheaper funding available in the wholesale markets."
Narev also said, "We have decided that the best way of creating value for our shareholders is to go easier on the price lever, and just manage margins well while focusing on our customers."
The 90 day bank bill rate is currently about 3%, so receiving more than 4% from CBA will be a struggle.