SME Deposits and Basel

APRA has today written to ADIs about best practices in assessing SME deposits accounts. Essentially, in a recent review of 14 institutions, they found significant inconsistencies, based on how individual ADI’s were choosing to flag balances as a “stable deposit”, whether the customer was in a “stable relationship” with the ADI, and which types of account – especially internet based account should be considered “less stable deposits”. In addition “heavily rate driven deposits” need to be correctly classified.

This complexity is a result of the Basel Committee who  introduced a globally harmonised liquidity framework by developing two minimum standards with the objective of promoting short-term and long-term resilience. The Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) were developed to fulfil these objectives and to also enable regulators and investors to make meaningful comparisons between banks. APRA’s expectation is that ADIs with similar business models, balance sheets and customer groups would generate similar cash outflows under the LCR.

The net effect may well be to change the relative attractiveness of rates offered by banks, especially for call deposits offered on line, as they will cost the banks more. On the other hand, deposits, held as part of a longer relationship, with notice periods attached could become more attractive.

Finally, APRA noted that few ADIs benchmarked their offered rates against rates offered by peer competitors for the purposes of this classification and suggests that such benchmarking would constitute good practice.

DFA looked at SME savings balances in our recent report. SME’s have deposits in total worth more than $107bn. The distribution of deposits varies with size. Nearly half is held by the largest firms, and holdings decrease as we look across the smaller-sized firms. The average savings balance varies also between firms which are credit avoiders, and those who are not.



Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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