RBA says the way banks fund loans is changing significantly, as funding costs continue to rise

The Reserve Bank of Australia said the way in which banks fund their loans is changing significantly, as funding costs continue to rise since the GFC.

RBA said in its statement on monetary policy the funding costs for bank loans have increased by about 20 basis points since mid-2011.

“This reflects effects of ongoing competition for deposits,” the RBA said in report released today.

In February, the RBA kept the cash rate at 4.25%.

This decision was followed by the four largest banks all increasing their variable home loan rates to the outrage of politicians of both political persuasions.

This week the RBA announced its largest cut to the cash rate in two-and-a-half years of 50 basis points.

Only two of the big four have cut their variable rates, and none have matched the RBA cut.

Fitch ratings agency recently downgraded its long-term credit rating of three of the four big banks, citing the reliance on offshore wholesale funding.

Domestic bank deposits are a relatively expensive source of funding, but now make up over 50% of the funding for Australian bank loans.

In 2008 domestic bank deposits supplied just below 40% of funding.