A big Aussie-owned bank sneaks in a term deposit rate cut, setting some of its rate offers below its main rivals. We review what is behind the move and how bank margins are tracking

The first term deposit rate reductions by a major bank in 2019 are upon us.

ASB has trimmed five basis points off its four-month rate, its 18-month rate and its two-year rate. It has cut 10 basis points from its three-year rate offer. And it has shed 15 basis points from its four year and five year rate offers.

After these changes ASB is still broadly competitive in rate terms of less than one-year, but is exposed at the important one-year mark. All its main rivals offer higher one year rates, with BNZ offering as much as 20 basis points more.

By this move, ASB will be hoping that its main rivals follow its move down, otherwise ASB will start to feel exposed.

Fixed mortgage rates have been declining possibly putting pressure on bank net interest margins (NIMs). Even for banks that haven't dropped their carded mortgage rate offers, they may still feel under market pressure to match those that have reduced.

Wholesale rates have also been falling, especially for two years and less. In fact, wholesale rates at the new current levels are at or near record all-time lows. Most banks don't use wholesale funding much, but the big banks do with about 20% of their overall funding from that source. (Most funding is from customer deposits.) One bank, however, is substantially wholesale funded and that is HSBC and it's setting the floor in the fixed rate mortgage market. HSBC may be a minnow in New Zealand (0.7% market share) but its headline rate is somewhat influential across the whole mortgage market, and a driver of the perceived pressure on bank NIMs.

But in ASB's case, its net interest margin is generally higher than its rivals, according to data in the RBNZ Dashboard. Wednesday's KPMG FIPS review shows New Zealand banks have posted their highest profits and lowest funding costs in the 32-year history of the annual FIPS review. None of this bolsters bank arguments that they are under meaningful margin pressure. 

KPMG says the banking sector's annual net interest margin rose four basis points to 2.12%, and its return on equity increased 46 basis points to 14.88%. The cost-to-income ratio dropped 166 basis points to 37.95%. In ASB's latest financials to December 31, 2018 the bank reported a net interest margin up 1 basis point to 2.21%, although it is down 6 basis points from June 2018. (See page 63 of parent Commonwealth Bank of Australia's commentary on ASB.) It will be hard for ASB to argue that margin pressure is behind today's term deposit rate reductions. But they have dropped these TD rates anyway.

The updated rates in the table below are the highest offered by each institution for the terms listed. You however will need to check how often interest is credited or paid. That important factor is not filtered in the above table and rates with various interest payment/credit arrangements are mixed here. However, our full tables do disclose the offer basis.

Our unique term deposit calculator can help quantify what each offer will net you.

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of one-to-five years are here.

Term PIE rates are here.

The latest headline rate offers are in this table.

for a $25,000 deposit	Rating	3/4 mths	5/6/7 mths	8/9 mths	1 yr	18 mths	2 yrs	3 yrs
Main banks
ANZ	AA-	3.00	3.25	3.40	3.40	3.45	3.50	3.60
	AA-	2.95	3.25	3.40	3.35	3.40	3.45	3.50
	AA-	2.88	3.28	3.38	3.55	3.38	3.50	3.55
Kiwibank	A	2.95	3.40	3.40	3.40		3.55	3.70
	AA-	2.95	3.25	3.35	3.40	3.45	3.50	3.55
Other banks
	BBB	3.00	3.25	3.30	3.35	3.40	3.50	3.60
	BBB	3.25	3.35	3.50	3.50	3.60	3.70	3.80
HSBC Premier	AA-	2.60	2.90	2.90	2.90		2.90	3.00
ICBC	A	3.10	3.40	3.40	3.50	3.60	3.70	3.80
	A	2.80	3.30	3.30	3.35	3.55	3.55	3.70
	BBB	2.90	3.25	3.30	3.40	3.40	3.50	3.65
	A-	2.90	3.15	3.20	3.25	3.45	3.50	3.65
Selected fincos
FE Investments	B		4.80		5.00	5.40	5.50	5.60
Liberty Finance	BBB-	3.60	3.95	4.25	4.30	4.35	4.40	4.45
UDC	BBB	2.85	3.25	3.40	3.45	3.45	3.50	3.60