Why would the global credit crunch impact NZ retail deposits?

Mike,your comments beggar belief.Are you suggesting that the Australian owned NZ banks lend at a loss? I would also have believed that with Rabo having such a good rating they could offer a better rate on TDs if they can borrow other funds at a discount to competitors.Recently the TD rates offered are well off the mark,disappointing considering the great offers in the past.I notice that where the rates increase depositors receive a message to that effect,why not the same service when rates drop?

The behaviour of our local trading banks to the current credit crisis is to offer deposit bonds with a guaranteed return over a significant time frame eg. a bond of say $20,000 at 10% interest paid quarterly for the next 5 years. By this method, they are mopping up local liquidity instead of sourcing funds on the global money market and are thus avoiding to some extent, the pricing issue.

Rabobank should consider its position very carefully in this environment and consider a protection for its large "at call" deposit base. To assist could I suggest quarterly or monthly interest payment options for some or all of its term deposit offerings. Such a move could appeal to the elderly depositor who is looking for the best and safest provider and is focussed on income rather than asset growth. Such depositors do not alter their loyalty based on AAA vs A- believing that the 4 pillars Australian Government financial policy will protect them, but they are more likely to take notice of price and importantly, matching the product to their personal needs.

It is better to reduce your gross profit margin now than to risk the loss of most of the "at call" deposit base.

Indeed food for thought Mike. Please also pass on my best regards to John Baird and i hope that he is settling in at RaboPlus.

Kind Regards

John

I had noticed the sudden increase in deposit rates at another bank, and I wondered if it had anything to do with their large exposure to residential property mortgages. So this blog entry caught my attention...
Locking in a high interest rate for 5 years was tempting since the rates are probably on their way down, but I'm sticking with the Cash Advantage Fund because of its liquidity and high after-tax return. Hopefully its interest rate will stay competitive.

I guess the banks are making a trade off (thorugh negative margins) to ensure that they have enough cash incase there is a Northern Rock style run on the bank.

However I thought that the banks could borrow money from the reserve bnak at any time.

I imagine that Raboplus is not at negative margins, for a start you do not have a large branch network to pay for, only a large computer server, along with a rather nice credit rating.

I have enjoyed my participation as a RaboBank customer and would not wish to see my funds taken hostage by poor management. I am an older depositor. Please do not make decisions which reflect corporate greed. Consider the consequences of solid planning versus giving up your fine world wide rating through over leveraging. Greed us not good. Keep my funds safe! Alex

Rabobank should certainly consider (especially for retired depositors)one year term deposits with monthly interest payments. Other local banks certainly accept such term deposits simply because retired investors need the monthly interest payments in order to supplement their Superannuation income.
Regards Wally

Good point, Wally.

Where's my 9% offer from Raboplus? And no, I wasn't informed of fee rate drop :-(. If my online share trading provider can supply me with instant online price changes when requested, why can't Rabobank notify me of a rate drop!

Walter, thanks for the feedback. Can I suggest you “watch this space” as we are soon to announce a significant enhancement to our Term Deposits which I have no doubt you’d appreciate.

Courtney thanks for the feedback – we shall definitely review the messages we provide our customers.

I hope the "significant enhancement" to the term deposits is related to a PIE structure. :)

I am close to clearing out my pie account and locking into a term dep at another bank. A fixed term pie would appeal to me and I would definitely stay with you then.
cheers

I see Kiwibank is now offering a PIE term deposit. When is Rabo going to do it?

Darryl, we are constantly looking at new offerings, and have considered a PIE TD. At this stage, for commercial reasons, I can not say anymore for fear of letting the cat out of the bag.

Will your pie TD's accept deposits from family trusts? Can we assume that your reluctance "to let the cat out of the bag" is because your pies will be made of cats meat?

Barry, aside from RaboPlus customers who have relocated overseas, for whom there is currently a restriction re ownership off Managed Funds, all RaboPlus products are available for all RaboPlus customers. We shall continue to do all we can to maintain this approach going forward for any new products and/or product enhancements.

Hi Mike,
still waiting for the Rabo Term Deposit pie. Am cashing my Rabo on call pie today to put into the Kiwibank one. Would have stayed but dont want to watch interest rates slide down without locking in to some term.

Mike

I will be following Darryly shortly too - the additional 0.55% interest on a 5 month PIE TD at Kiwibank is just too attractive. They are pushing it hard – it came to my notice today in the form of a big poster in the door when I walked into a Post Shop.

It’s a pity because I like Raboplus’ efficiency.

Putting the fact that other banks are currently offering better rates than you aside (though I appreciate that you offer minimum deposits of $1000), I'm wondering why your rates are continously downhill from the half year to the 5 year one? None of the other banks seem to do this.

Urudashi Bonds and how they will affect the Kiwi Dollar

Mrs. Watanabe is about to get burned.
She's in a situation like the Miami condo "flipper" who found himself with the maximum amount of debt at precisely the wrong time a few summers ago. Or the dot-com day trader who was trading stocks on margin back in 2000 and got slaughtered.
It will end badly, without a doubt. The only question is when. Here's the story...
In Japan, housewives handle the money. In the past, they've been conservative. They haven't bought stocks or real estate... and that's actually been the right call in Japan. But now they're in trouble...
It all started innocuously enough. Bank accounts in Japan pay next to no interest. But in Australia, bank accounts earn 6% interest. Japan's housewives understood that Australia's a fairly safe place to stash your money. So they started putting their money in Australian bank accounts.
This simple strategy really paid off.
Not only did they earn a lot more interest... the Australian dollar soared versus the Japanese yen, nearly doubling from 2000 to 2007. So when the Japanese housewives converted their money back into yen, the profits were huge!
From late 2000 to mid 2007, it was easy money... The yen/Aussie trendline was nearly a straight shot – you couldn't lose.
Again, the Japanese housewives are typically conservative. But after seven years of near-uninterrupted success, they decided simply tripling their money wasn't enough...
So their brokers told them about leverage.
"Mrs. Watanabe" (the typical Japanese housewife, like "Mrs. Smith" in the States) started buying Australian dollars on margin... In other words, she now borrows money to make this trade.
"How can I go wrong?" she thinks. She's borrowing in Japan at essentially a 0% interest rate and investing in Australia, earning over 7% today. It all works out great... as long as the Aussie dollar keeps getting stronger versus the yen.
But this is the problem...
When she first entered the trade at the beginning of this decade, it was a good trade. The yen was severely overvalued, and the Aussie dollar was cheap. But those days are gone. Now, the yen is the cheapest major currency in the world. And up until recently, the Aussie dollar was as expensive as it's ever been.
Meanwhile, Mrs. Watanabe is in deep... Advertisements for currency trading margin accounts on Tokyo's subway lines offer low fees, tight spreads, and get this – leverage as much as 200 times the down payment. And the number of these "forex" accounts held in Japan nearly doubled last year, increasing 92%!
The trade appears to have ended last summer. Since then, the yen has been creeping up against the Aussie dollar. But Mrs. Watanabe isn't pulling back. Instead, she has decided to take on more risk – she's now buying what are known as "Uridashi bonds."
Companies in countries other than Japan issue Uridashi bonds... which are simply foreign bonds sold to Japanese investors. So now, instead of putting money in the bank in safe countries like Australia, she's buying bonds in Africa, Brazil, and Turkey.
I'm not joking! Mrs. Watanabes across Japan have snapped up an astounding $650+ million worth of South African rand-denominated Uridashi bonds this year.
What can go wrong? Oh, boy... Mrs. Watanabe is blinded by the interest rate – she can earn double-digit interest rates in these wild places. So the normally prudent Mrs. Watanabe is now overleveraged... in risky investments... at precisely the wrong time!
Mrs. Watanabe – and her kind – will be the next bubble to burst.
As the yen continues to inch up, all these Japanese housewives will have to close out their margin accounts, selling billions of Aussie dollars and other Uridashi currencies. As the billions of dollars of leverage unwind, the Japanese yen could soar – particularly against the "high-yield" currencies.
Right now, Mrs. Watanabe is selling something super cheap (the yen) to buy something super expensive, like the Aussie dollar. And she's borrowing money to do it.
It is the next bubble. And it will end badly.

glad I fixed at the high rates. The rabo pie on call is looking a bit sick in comparison now.

Can you tell me if NZ banks have been involved with selling off Mortgages.
Thankyou.

Judith, yes they have. The term used for this is called “Securitisation”. This article from the Reserve Bank of New Zealand will provide you with some useful information on this topic.

http://www.rbnz.govt.nz/speeches/0060353.html

Pretty good post. I'm so happy that I find this blog, thank you for sharing.