Australian Institutional Segment Hunkering Down

New data from East & Partners Deposit Funding & Debt Index (DFDI) shows that rapid deleveraging by Australia’s Top 500 companies is continuing, casting doubts over a revival in business lending acting as an alternative growth area for banks.

The DFDI is created by overlaying firm’s proprietary demand sized segmentation over APRA’s monthly banking statistics, highlighting the balance between deposits and lending in the banking system.

The latest round of the DFDI reveals Australian institutional business deposit volumes steadily climbing higher, from 18.6% of total market deposits in 2012 to a current high of 28.4%. Business lending volumes by the Top 500 have correspondingly contracted, from a 2012 high of 41.5% to a fresh low of 22.8% in 2014.

The deposit to lending relationship is reflected in the business DFDI ratio for the institutional segment, which increased significantly from 0.45 to 1.25 in the past two years. This ratio means that Australia’s largest enterprises by revenue now deposit AU$1.25 for every dollar they borrow. Two years ago, they had AU$0.45 in deposits for every dollar they borrowed.

Lower wholesale funding costs have allowed for reductions in term deposit rates, benefitting regional banks in particular given they fund the majority of their loans from domestic deposits.

The Top 500 increasingly favours shorter dated term deposit tenors, allocating 77.3% of volumes to three month term deposits compared to a mere 0.2% to longer dated 12 plus months term deposits.

Despite a considerable expansion in SME lending appetite, their percentage of total market borrowing volume remains narrowly below 20%, compared to 42.3% for the corporate segment and 15.1% for micro businesses.

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