Banks Continue to Build Up Funding Volumes and Expect Cost of Funding to Decline – Bank Funding Survey

The volume of bank funding continued to grow in Q3 2023. In Q4, most financial institutions expect the uptrend to continue and interest rates on deposits to decrease. This is according to the quarterly Bank Funding Survey.

Unlike in previous periods, most of the growth occurred in retail liabilities instead of corporate ones. The volume of retail deposits increased, most respondents said. Growth in corporate deposits was reported by 59% of respondents, down from 95% in Q2.

For the first time since the full-scale war broke out, the volume of wholesale funding remained unchanged thanks to the attractive price of such borrowing. Going forward, 43% of the banks are planning to raise wholesale funding. This is one of the highest percentages since the survey began in 2021.

The level of interest rates on deposits remains the major driver of the growth in funding. The average cost of funding, however, declined for the first time since mid-2021. This was primarily driven by the decrease in the cost of corporate deposits and wholesale funding, as most financial institutions noted the growth in interest rates on retail deposits.

In October–December, most banks are expecting a decrease in the rates on corporate and retail deposits and no change in the cost of wholesale funding.

The share of FX funding has been shrinking for two straight quarters, the banks estimate. Almost half of respondents have the same expectations for Q4.

In Q3, the maturity of funding did not change, but the banks anticipate that it will grow in the next 12 months.

Almost all respondents highlighted the growth in their total capital over the past year. In the next 12 months, the banks expect an increase in capital, a trend that has persisted since early 2023. For the fifth time running, respondents named profitability as the major driver of capital increases.

Although the majority of respondents are aware of the increase in the cost of capital over the past 12 months, they are not expecting that the cost will change in the future.