Cost of Banking Will Continue to Rise

Funding costs will apparently continue to rise despite projections by several bankers that this will no longer take heat this year.

ANZ and Westpac, two of Australia’s major banks, say that lack of deposits and current problems overseas have forced banks to pay a premium. The new projection is that banks will be pressured to find sources of funding in the next five years.

In a Senate inquiry about how banks can handle the global financial crisis, a bank executive said that there are actually faced with competition to finding deposits, where at least half of the funds come from.

Some companies have already started offering higher interest rates, just to encourage savers.

According to ANZ chief Graham Hodges, the overall impact appears as if they have two more years where we will see it continue to rise.

According to Westpac, meanwhile, demands from overseas lenders will not wane. According financial division head Jim Tate, this is another thing to look out for banks in Australia are actually paying more just to borrow funds abroad.

It should be noted that it was Westpac executive Gail Kelly who said in 2010 that funding costs isn’t going to be a big problem this year.

As banking costs continue to rise, credit growth, meanwhile, is slowing down. The last decade saw banks enjoy at least 20 percent of mortgage growth, but when the global crisis struck, this was severely affected.