With banking customers less willing to load up their credit cards and other forms of debt, bankers are now worrying over the battle for deposits and the rising cost of funding, concerns likely to dominate the industry for the next three years.

These concerns were discussed by bankers with NAB, Citigroup, GE Capital, and the credit union MECU during a luncheon address recently in Melbourne, with three-year projections foreseeing a tightly competitive market.

The modern Australian household is more financially savvy and oriented for value now than before the global financial crisis, said Mark Melvin, NAB’s southern region retail general manager.

“Consumers generally just stopped shopping and spent less,” said Mr. Melvin, “and learnt a lot during that time.”

According to Linda Duncombe, director of marketing and digital banking for Citigroup, described this new financial savvy customer as fully cognizant of interest rates, as applied both to their debt and their deposits.

These banking customers are “making a much more concerted effort to make more than that minimum repayment” for their credit card balances, she said.

According to Damien Walsh, chief financial officer and general manager for MECU, explained that the European sovereign debt crisis was again driving up the cost of wholesale funding for all banks. The banks have billions in debt requiring refinancing, $78 billion with the four major banks alone.

“The acquisition of retail deposits over the next three years is going to be really critical to our business,” said Mr. Walsh. “If we can’t sustain that growth and we have to look at wholesale, then it better be affordable.”

Skander Malcolm, chief executive for local operations with GE Capital, said the company no longer writes mortgages and auto loans because of the higher funding costs. Rolling over the banks’ portfolios will remain difficult, he said.

“If you’re Westpac and you’ve got a $250 billion mortgage book,” Mr. Malcolm said, “that’s going to be tough to fund. That’s going to flow through to pricing pressure on the consumer” in higher interest rates and surcharges.

Source: http://news.theage.com.au/