Banking: Prolonged deposit slowdown may lead to higher funding costs

PETALING JAYA: The slowdown in deposit growth to almost a three-year low is expected to put further pressure on banks’ net interest margins (NIM) which have been compressed in the last few years. The lower margins have to an extent impacted earnings due to the low interest rate environment.

Analysts expect competition to intensify in the deposit space to attract more deposits which has been on the downtrend resulting in higher cost of funds. One of the main reasons why banks are building up their deposit bases is that they are preparing to meet the Basel III liquidity requirements.