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Higher deposit rates here to stay: PSIS

Wednesday 16th June 2010

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Higher deposit rates are going to become part of the landscape as banks continue to compete for retail investors' cash to meet central bank obligations, according to financial services cooperative PSIS.

Chief executive Girol Karacaoglu said the big Australian banks' need to source more cash domestically will keep rates high and put pressure on lenders' interest rate margins. This comes as the mutual prepares for downward pressure on its own profitability after it posted record net earnings of $13.1 million last year.

PSIS boosted its total deposits to $1.12 billion from $1.07 billion a year ago, and Karacaoglu said they had achieved an 85% reinvestment rate from depositors. He said the new cash was split 50/50 from new and existing members. The firm plans to focus on "organic growth" by squeezing more from its existing members rather than chasing new clients.

Karacaoglu said the PSIS hadn't decided whether to apply for the government's extension to the retail deposit guarantee scheme, having not needed to call on the initial programme, though it has qualified with a credit rating of BB+.

Chairman David Gascoigne said PSIS is not investigating any merger and acquisition activity at present in face of expected consolidation in the sector, and the company was upbeat about the outlook for non-bank deposit takers, saying the lender was supportive of the new prudential oversight non-banks faced.

Gascoigne said the firm is exploring potential returns for its 130,000 members, such as a dividend payment or more attractive lending and deposit rates in good years.

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