Banks Expect Cost of Retail Deposits to Rise and, for First Time Since War Broke Out, Cost of Corporate Deposits and Capital to Fall – Bank Funding Survey

Almost all financial institutions reported growth in clients’ deposits in Q2. Wholesale funding has been declining since the onset of the full-scale invasion. This is according to the quarterly Bank Funding Survey.

A higher level of interest rates on deposits was the major driver of the growth in clients’ deposits. As additional factors, respondents named regulatory requirements, the supply of deposits from businesses, and plans by financial institutions to change their funding structure.

The banks continue to expect the volume of liabilities to rise in Q3 as more deposits come in from households and businesses. Only 14% of respondents are planning to raise wholesale funding in the future. This is the lowest level of this indicator since the survey debuted in 2021.

The average cost of funding increased in Q2, the banks estimate. A record 95% of respondents highlighted the rise in interest rates on retail deposits. The share of responses mentioning the increase in the cost of corporate deposits is smaller and shrank during the quarter.

The banks primarily expect the cost of retail deposits to grow further in Q3, while corporate deposits may become cheaper. The cost of wholesale funding will grow somewhat.

Although the share of FX-denominated funding shrank, a significant portion of respondents expect it to keep getting smaller.

The maturity of funding has increased for the second straight quarter, and the banks anticipate that this trend will persist over the next 12 months.

For the second quarter running, 80% of respondents pointed out that the total volume of their capital had increased over the past 12 months. Almost three-quarters are expecting further growth in the next 12 months. The two straight quarters of positive growth projections came after a year of negative ones.

Respondents once again cited profitability as the only factor that will drive an increase in capital in the coming 12 months.

A consistently high percentage of the banks reported a rise in the cost of capital over the past 12 months. Going forward, however, the banks project a decline in the cost of capital.