Household bank deposits drop $7.7b, in first decline in two years

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The value of household deposits held by Australian banks has shrunk for the first time in two years, in a sign more consumers are feeling the pinch of successive interest rates ahead of Tuesday’s Reserve Bank decision.

Figures released by the Australian Prudential Regulation Authority (ARPA) on Monday showed household deposits across the banking system fell $7.76 billion in June, or 0.56 per cent, the first decrease since May 2021, according to CLSA equity analyst Ed Henning.

The total value of household deposits with Australian banks fell $7.7 billion in June, figures from the banking regulator showed.Credit: Josh Robenstone

The decline follows predictions from bank bosses that households will face growing pressure in the months ahead, especially if the RBA decides to push interest rates higher. According to analysts, a further deterioration in household bank deposit levels would reflect homes further drawing down their savings to tackle the cost-of-living squeeze.

Henning said movements in June figures were sometimes seasonal due to the end of the financial year, but noted he would be watching the APRA data closely to see if the decline in household deposits continued. “If household deposits are falling, it means people are spending more than they are saving and that therefore inflation is biting,” he said.

The APRA figures come as the Reserve Bank decides on Tuesday whether to continue lifting interest rates to further push down inflation. Money markets are betting there is roughly a 15 per cent chance of a rise this week, with economists from banks including CBA and Westpac forecasting a hike in the cash rate from 4.1 per cent to 4.35 per cent.

Henning’s analysis showed Westpac posting the smallest decline in household deposits at 0.19 per cent in the month, compared with ANZ which registered a 0.86 per cent decrease, CBA with a 0.75 per cent fall and NAB with a 0.63 per cent drop.

While major banks have highlighted people changing their spending patterns in response to rising costs, they have broadly maintained that indicators of financial stress such as delinquencies remain low, partly because of household savings built up during the pandemic.

In June, NAB group executive for personal banking Rachel Slade said many customers still had high balances in their offset and savings accounts and, in July, Commonwealth Bank boss Matt Comyn told the banking inquiry that households’ high savings and the delay in interest rates being passed through had meant the “vast majority” of customers were in good shape.

Westpac boss Peter King warned in July, however, that savings buffers were running down, and all three executives have said financial pressure on households will probably get harder as the impact of 12 interest rate hikes in 14 months flows through.

Westpac senior economist Matthew Hassan said about $20 billion of the $260 billion in excess savings reserves during the pandemic had been drawn over the six months to March and “no doubt more since then”.

UBS head of Australian bank research John Storey cautioned APRA’s data on household deposits only covered one month, but said it came amid anecdotes that more customers were starting to withdraw funds from offset accounts. “It does feel like some of the interest rate increases that we’ve seen are having some kind of impact around monthly cashflows,” he said. “It feels like consumers are under some degree of duress and the lagged impact of these rate rises is starting to come through, but it’s one data point and we don’t want to read too much into it.”

Meanwhile, the value of home loans on banks’ books increased 0.6 per cent in June according to the APRA data, led by Westpac which grew its housing credit by 0.75 per cent. ANZ and CBA’s housing credit growth slowed slightly over the month at 0.65 per cent and 0.35 per cent respectively, while NAB saw stronger growth at 0.51 per cent.

Macquarie, which last month looked to be taking its foot off the pedal in the home loan market, registered the biggest housing credit growth of the five major home loan players in June at 0.97 per cent.

The figures come as investors gear up for earnings season where they will be watching for the impact of a slowing economy, higher funding costs and narrowing net interest margins on banks’ earnings and dividends.

Martin Currie chief investment officer Reece Birtles said lower savings would probably reduce customer demand for credit and, as funding costs normalised, the large mortgage discounts offered by banks would come home to roost.

“Lower net interest margins will lead to reduced revenues, which, we believe, will be even lower than the consensus estimates for the next three to five years,” he said. “This, in turn, will result in a higher-than-expected cash earnings shortfall compared with our earlier expectations and consensus.“

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