PETALING JAYA: Banks are chasing after cheap deposits to balance out the loan-deposit ratio (LDR), with some offering fixed deposit rates as high as 4.5% per annum for a 12-month tenure on a promotional basis.
In a survey by StarBiz on conventional and non-conventional banks, the promotional rates offered were on average 100 basis points higher than the rates displayed on the boards.
Among the highest promotional rate being offered by a conventional bank is Malayan Banking Bhd that is offering 4.5% per annum for a 12-month tenure, with the offer valid until Nov 30.
Malaysia Building Society Bhd, a non-conventional bank that is majority owned by the Employees Provident Fund, is also offering 4.5% per annum on a promotional basis until Dec 31. The offer is for new deposits placed with the lender for an 18-month tenure.
This is followed by CIMB Bank offering 4.3% for a 12-month tenure and Public Bank Bhd offering a blended rate of 4.3% for a similar period.
Meanwhile, Bank Rakyat, which is a non-conventional bank, is offering a rate of 4.1% per annum for 12 months, while the promotional fixed deposit rates of Bank Islam and Bank Muamalat are at 3.6% and 3.45%, respectively.
Some banks such as Alliance Bank and RHB Bank are offering promotions for different tenures, but are maintaining the board rates for the 12-month period.
According to the banks’ websites, the board rates range from 3.3% to 3.7%.
Banks are under pressure to attract more deposits as under Basel III, they need to hold a buffer of ostensibly high-quality liquid assets, such as Government bonds, to cover non-operating deposits and protect themselves from a funding run.
Analysts expect that a compression in banks’ net interest margins would add to the already competitive environment in the deposit market.
The existing compliance with Basel III guidelines would further intensify the competition for deposits and hence, result in higher deposit costs for banks.
Meanwhile, Fitch Ratings said a tougher operating environment amid sluggish economic growth, depreciating currencies and softer commodity prices would continue to challenge banks in many parts of the Asean region.
Currency, credit and liquidity risks are increasingly coming into focus, and asset quality is likely to deteriorate, particularly in Indonesia and Malaysia.
That said, most banking systems are coming from a position of strength and are reasonably well-positioned to manage the likely risks.
Asean banks have lower non-performing loan ratios, lower LDR, higher capital adequacy ratios and higher loan-loss reserve coverage.
That said, HLIB Research mentioned in a note recently that deposits in September increased by 5.4% year-on-year (y-o-y) and 0.13% month-on-month (m-o-m) to RM1.667bil.
However, analysts note that the pace continues to be tepid at just 2% on an annualised basis.
The industry’s LDR fell to 90.1% as at end-September from 90.4% in August, meaning that the pace of loans growth is faster than deposits.
Fixed deposits contracted m-o-m and accounted for just 34.7% of total deposits, lower than 35.3% in August as current account savings account improved to 25.8% of total deposits from 25.7% as at end-August.
Meanwhile, excess liquidity expanded to RM242.8bil in September from RM233.1bil in August.
“While liquidity is still ample to fund domestic economic growth, the high LDR, albeit having declined on a m-o-m basis, could limit loans growth, albeit still being supportive of credit expansion,” said the research house.
Last month, Kenanga Research added that for the second quarter, loans and deposits growth improved quarter-on-quarter and y-o-y, where the LDR improved by 127 basis points, indicating liquidity position is getting tighter.
“To note, current account and savings account, as a percentage of total deposits was still flattish at 30%, hence, net interest margin compression was unavoidable,” it said.