It appears that the biggest losers in the current low interest-rate environment are the major banks, as savers begin to withdraw their funds for higher-yielding investments such as equities and property, an analysis by Morgan Stanley shows.
Household deposit growth for major banks declined by about 9%, with flows of more than 4% turned into equivalent withdrawals over the past year. Of the big four banks, CBA saw the biggest slump in deposit growth at 6.8%. Across all institutions, deposits fell by 3.7%.
Industry data show that around 60% of financial institutions have slashed their 12-month term deposit rates following the back-to-back rate cuts by the Reserve Bank of Australia. The average rate of a 12-month term deposit of $25,000 now sits at 1.9%, down from the recent 2.29%.
"They remain a bit of a safe haven because they are almost 1% above savings rates. The squeeze will be on term deposits when the Reserve Bank next moves down," Carnstar group executive Steve Mickenbecker told The Australian Financial Review.
The rate for savings accounts has taken the biggest hit — around 50 institutions have cut their base rates for savings accounts.
In a previous report, CLSA banking analyst Brian Johnson said while a rate cut might benefit borrowers, those who have saved up their money at their local banks would likely earn nothing.
"It's potentially a gigantic issue. When you think of the politics of where we are right now, I think it would be unrealistic to think that the banks couldn't pass a rate cut on," he said.
The Parliament invited Reserve Bank of Australia Governor Philip Lowe today to discuss about the rationale behind the back-to-back rate cuts, a separate report from the AFR said.
Tim Wilson, the chair of the House of Representatives economics committee, would like the central bank governor to explain the possibility of deploying extreme measures such as quantitative easing.
"There really are a lot of questions they need to answer about their decisions and what they're factoring in. They're saying publicly at the moment that cutting rates won't increase the amount of debt and house prices, but their own research shows cutting interest rates is the biggest contributor to the volume of household debt and house prices," Wilson told the AFR.
Earlier this year, RBA released a study saying that interest-rate changes play a bigger role in house-price movements, particularly in the surge recorded during the property boom.
However, Lowe recently dismissed concerns that a back-to-back rate cut would result in another surge in prices and household debt.
"There's been a significant tightening in lending standards and in some respects it seems to me that some institutions have become excessively risk-averse. The appetite by the household sector to borrow is less than it once was," he said. "I think many people in the community feel like they've already borrowed too much and now is a period to consolidate your balance sheet rather than to go and take out more debt, even at low interest rates."