The competition for deposits among banks is set to continue this year, due to their compliance with several regulatory requirements, say industry players. Thus, consumers can expect competitive rates and promotions going forward.

RHB Banking Group acting head for group retail banking Nazri Othman tells Personal Wealth that he expects promotional rates to continue in 2019 as banks fight for greater market share of retail deposits. He explains that competitive deposit promotional packages build a stable funding base for banks as retail deposits are deemed to be stable and carry lower liquidity compliance cost than wholesale deposits.

“This will be a full year for liquidity coverage ratio (LCR) requirement compliance and banks are willing to pay higher rates to maintain their retail deposit holdings to enjoy some savings in liquidity compliance cost. Retail deposits attract lower run-off rate in the LCR computation, thus it makes sense for banks to pay competitive rates for retail deposits compared with wholesale deposits,” says Nazri.

According to the Association of Banks Malaysia, regulators introduced the use of indicators of liquidity risk, such as LCR, in 2015 to address the limitations of the loan-to-deposit ratio (LDR). In response, most banks have already increased their retail deposits in recent years.

Beginning Jan 1, Bank Negara Malaysia’s minimum requirement for LCR levels at banking institutions is 100%. Previously, the minimum levels were 90% and 80% in 2018 and 2017 respectively. In recent years, most banks have already begun increasing their retail deposits in anticipation of the LCR requirements.

Meanwhile, RHB’s Nazri expects the LDR to stabilise this year from the retail deposit build-up and bank rates on retail loan products will be more competitive as well. “Banks need to redeploy any excess funds into loan assets. We expect net interest margin (NIM) compression due to higher funding cost and competitive lending rates,” he says.

Affin Bank group CEO Kamarul Ariffin Mohd Jamil says he too believes competition for deposits will intensify due to the need for compliance with the Basel III guidelines. “We anticipate many competitors will be offering more promotions to capture deposits going forward.”

Basel III is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector.

Kamarul says deposit promotions at Affin Bank are for both existing account holders and new customers, specifically Gen Y. These promotions sees good response from customers and is something they look forward to every year, he adds.

“We hope these promotions will attract new customers, especially the Gen Y segment, which represents a substantial portion of our population today. In addition to rewarding our loyal customers, the bank also creates awareness of its complete range of products via these promotions,” says Kamarul.

“We anticipate that the public will get acquainted with our products, apart from opening an account with us, especially wealth management products that have gained interest and momentum among youngsters today.”

Nazri says RHB promotional campaigns are part of the bank’s strategy to attract new account holders, starting with a simple deposit product and eventually extending its other products and services at a later stage. He adds that RHB’s fixed deposit (FD) rates are higher than last year, driven by the competition from other banks, as well as offer longer maturity rates of 12 or 15-month tenures.

Affin Bank’s deposit campaign goes on until May 31. It is offering an interest rate of 4.55% per annum for an 18-month tenure. The deposit amount has to be fresh funds of between RM20,000 and RM200,000, with another RM5,000 deposited in a savings or current account during the tenure.

This promotional rate is in line with the market rate so that the bank remains competitive as well as strengthens its growth in retail deposits, says Kamarul. “Our bank has been focusing on and encouraging customers to place long-term FD tenures to spur better saving habits, particularly among the younger generation. We believe that our proposition of financial services will help customers plan and achieve their personal financial goals.

“If the bank can grow deposits faster than loans, LDR can stabilise. This also means the competition for deposits will be more intense. Hence, the rates for deposits will go up, impacting the bank’s cost of funds.”

*Information accurate as at Feb 28, 2019. Information collated from hotlines and websites of respective banks.