Banks Report Declines in Corporate Deposit Rates and Cost of Equity – Bank Funding Survey

The banks’ costs of raising liabilities has decreased for two straight quarters, primarily due to lower interest rates on corporate deposits. In Q1 2024, the banks expect a decline in corporate and retail rates and no change in client deposits. This is according to the quarterly Bank Funding Survey.

The banks increased their liabilities in Q4 overall, mainly by raising retail and corporate deposits. Meanwhile, some of the large banks stepped up the volume of wholesale funding (bonds, loans from international financial institutions or parent banks, long-term refinancing, and more) for the first time in two and a half years.

The banks’ intensified efforts to raise retail deposits were primarily due to regulatory requirements. The increase in corporate deposits was mainly driven by supply from the clients themselves. At the same time, the impact of interest rate levels, which was the major driver of the client deposits growth during 2023, faded significantly.

According to the current survey’s results, many large banks are planning to attract wholesale funding, expecting to do it as soon as Q1.

Almost two-thirds of respondents reported a quarter-on-quarter drop in the rates on corporate deposits, while retail deposit rates and wholesale funding rates were almost flat.

Some 69% of respondents anticipate a further decline in corporate deposit rates, while 50% of those polled,  a drop in retail ones in Q1. The banks are projecting no change in the cost of wholesale funding.

The share of FX funding had been shrinking throughout 2023. More than half of respondents believe this trend will persist in Q1.

The maturity of funding edged lower in Q2, but the banks are not expecting any changes in the next 12 months.

The cost of capital decreased for the first time in two and a half years, almost half of respondents said. The banks anticipate the cost of capital will decline further.