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Higher deposit costs in Q3 an omen of 2019

Deposit costs kept climbing in the third quarter, and experts say banks should brace themselves to pay more in 2019.

After many quarters of waiting for the Federal Reserve’s interest-rate hikes to hit deposit betas, banks are now seeing consistent funding pressure and shifts in their deposit mixes, trends that are expected to stretch into 2019. Banks’ cost of funds increased 11 basis points sequentially to 86 basis points in the third quarter, a wave that has picked up more strength since the first quarter of 2017, according to S&P Global Market Intelligence data.

What remains uncertain for the industry is the speed of that repricing and how quickly depositors move money out of noninterest-bearing accounts to those that pay interest.

Banks are dealing with requests from commercial banking clients “pretty much every day” to increase their deposit rates, said Chrystal Pozin, director of commercial deposits and pricing at Novantas, a bank analytics and advisory company. “Commercial deposit growth is approaching zero in aggregate, but you’ll see a wide divergence in performance by bank,” she said. “A number of banks [are increasing] their rates and betas to achieve basically flat growth in commercial deposits.”

Read the full article at S&P Global

For more information, contact Novantas Marketing

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