What’s the real impact of rising deposit rates?

From Morgan Stanley:

The major banks have responded to the RBA’s 25bp rate cut by: (1) re-pricing home loan standard variable rates (SVRs) by ~12-15bp; (2) increasing rates for >1yr term deposits (TDs) by 45-75bp (although NAB raised 8-month TD rates by 85bp); (3) re-pricing business SVRs by 12-15bp. With this in mind, our Chart of the Week shows the full-year effect on margins from: (1) the stand alone “free float” impact from the 25bp rate cut; (2) a 25bp “squeeze” on margins for all Australian TDs; (3) the SVR re-pricing announced today;and (4) the increase in rates on >1yr TDs.

We highlight that: (1) NAB is the biggest beneficiary of today’s SVR re-pricing, but our forecasts already assume 15bp of re-pricing by all of the banks in August and February (refer Australia Banks:Falling Margins (17 Jul 2016)); (2) we expect use of differentiated re-pricing for mortgage products (OOLvs IPLand P+I vs IO) will become more common; (3) the decision to increase rates on >1yr TDs likely reflects the need to meet net stable funding ratio (NSFR) requirements in 2018; (4) one more RBA rate cut and some TD margin squeeze are included in our forecasts, but we see downside risk from a resumption in the “war on deposits”; (5) margin headwinds are becoming more broad based and ANZ looks less vulnerable than peers; (6) we forecast an average of ~1bp margin contraction in FY17E (ANZ: +4bp; CBA -4bp; NAB -1bp; WBC: -2bp); (7)even with SVR re-pricing benefits, falling interest rates increase downside risk to the consensus estimate of “flattish” margins in FY17E; (8) in our view, ANZ needs margin expansion to mitigate the revenue headwinds from institutional bank “rebalancing”

In short, if you haven’t already, sell banks!