Banks cut interest rates for deposits
Move follows Sibor's plunge and reflects flush conditions in money markets, analysts say
By Gabriel Chen(Taken from The Straits Times, 3rd March 2009)
BANK depositors are again feeling the pinch as a key interest rate continues to plunge, further squeezing the meagre returns on their savings.
At least four banks - Maybank, Standard Chartered Bank (Stanchart), United Overseas Bank (UOB) and OCBC Bank - have trimmed their rates for deposits or are set to do so.
This follows further hefty falls in the rate banks pay one another to borrow cash, known as the Singapore Interbank Offered Rate (Sibor) - a key influence on the rate that banks pay depositors.
The Sibor is hovering at just 0.68 per cent, bringing it near the all-time low of 0.56 per cent reached in June 2003. It has plunged about 70 per cent from 2.22 per cent last September. Since early January, when it was about 0.97 per cent, the rate has nose-dived about 30 per cent.
This month, OCBC is slashing the interest rate paid on its FairPrice Plus Account from 1 per cent to 0.5 per cent for the first $50,000, but will still pay 1 per cent for amounts higher than that. It used to pay 1 per cent a year for this account, with no minimum balance requirement.
'In the light of declining Sibor rates, banks have started aligning the interest rates for savings accounts downwards,' said OCBC's head of customer segment and portfolio management, Ms Lee Ee Ling.
With margins under pressure, other banks have responded by also trimming rates for customers.
Last month, Maybank cut rates for iSAVvy, an online savings account, from 1.08 per cent to 0.5 per cent a year, provided there is a daily balance of $5,000 to below $50,000.
Stanchart's rate for its eSaver online savings product is 0.4 per cent a year, down from the 0.5 per cent it paid in early January for deposits under $50,000.
Come March 16, the rates paid on UOB's i-Account, Campus Account and FlexiDeposit Account will be cut. The new rates, made public last month, are available on the bank's website.
For example, its FlexiDeposit Account, a statement- based savings account, will fall from 0.35 per cent to 0.25 per cent for the first $15,000.
Barclays Capital economist Leong Wai Ho has predicted: 'Sibor will continue to set new lows this year.
'This is a reflection of extremely flush conditions in the money markets, as a safe hedge against the worsening global backdrop and dislocated credit markets.'
OCBC Bank economist Selena Ling said the US Federal Reserve has cut its Fed funds target rate to a range of 0 per cent to 0.25 per cent, and is now 'considering alternative quantitative easing measures'. The Sibor closely tracks this rate.
Bankers have not ruled out further falls in deposit rates, to as low as 0.l25 per cent, in the near future.
If that seems implausible, think again. In early 2003, POSB savings and passbook account-holders received 0.125 per cent for the first $50,000.
Today, Singdollar deposits yield at least 0.25 per cent.
'Most Singapore banks do not have a competitive reason to attract deposits,' said the head of a foreign bank.
'Due to capital constraints, not many are in an expansionary mode in terms of more lending or increasing their asset book, therefore, there are...fewer reasons to attract deposits for funding purpose.'
The falling Sibor should, in theory, benefit new home buyers taking up Sibor-linked housing loans, but in reality they may not be better off. This is because many banks are raising the spreads they charge above Sibor.
At DBS, for example, a home buyer taking out a loan of 80 per cent of his property's value last July would have paid the Sibor rate plus 1.25 percentage points. Now, a new buyer has to pay Sibor plus 1.75 percentage points.
'Banks are making huge margins now between deposit and lending rates. Banks feel they have to be compensated for taking the risk on loans,' a banker said.
DBS, OCBC and UOB all saw quarter- on-quarter improvement in net interest margins during their fourth-quarter results announced last month.
Net interest margins measure the difference between what banks pay for deposits and borrowings and what banks earn on loans and investments.
gabrielc@sph.com.sg
Wednesday, March 4
Banks cut interest rates for deposits
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