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Banks lure retail deposits to build up capital

Flurry of bank offers in response to Basel III rules that kick in next year

Published on Oct 18, 2012 6:00 AM
 

Local and foreign banks are stepping up their strategies for luring retail deposits in the face of new regulations that demand they hold a higher level of ready capital.

The Basel III rules, as they are known, take effect next year and deem that deposits are a preferred source of funding. They are seen as more stable compared to unsecured wholesale funding, which may be cut at short notice in a liquidity crunch.

The response has been a flurry of bank offers, particularly from foreign institutions, to entice people to deposit their cash. ICICI Bank, for example, is offering a fixed deposit interest rate of up to 1.65 per cent for 36 months with a minimum deposit of $100,000.

At ANZ bank, a one-year term deposit of more than $150,000 yields up to 1.6 per cent per annum. Analysts believe that foreign banks are looking to pare down their dependence on counter-party borrowing, irrespective of the Basel III requirements.

 
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Background story

FOREIGN BANKS IN THE MARKET

Traditionally, they depend on the local banks for Singdollar funding but if, for some reason, other banks doubt their credibility, the tap could be switched off, so they are in the market to collect deposits.

- CIMB head of research Kenneth Ng