By Stuart Condie

SYDNEY--Australian bank earnings show the country's largest lenders building their deposit bases in recent months. Global market volatility could drive them to keep doing so.

Funding costs have jumped in recent years as central banks hiked interest rates to fight inflation. Just as global rates were starting to fall, tariff-driven uncertainty has roiled money markets, adding to lenders' worries over the cost of funds.

"Some of these markets have been so volatile that you would say to yourself, 'well why would you try to access that market?'" said Anthony Miller, CEO of Australia's Westpac Banking, last week.

"If that continues, that will focus us much more on domestic funding, and focus us much more on how do we source it, where do we source it, and the cost of that funding."

Part of the solution is for banks to persuade customers to stash away more money.

Westpac's fiscal first-half results last week showed customer deposits at March 31 were up 7.0% compared with the same period a year earlier. That lifted the deposit-to-loan ratio at Australia's second-largest bank to 84.5% from 82.9%.

Deposits at National Australia Bank and ANZ, the country's No. 3 and No. 4 lenders by market capitalization, respectively, also rose in their results last week.

NAB's deposit-to-loans ratio rose to 84% at March 31, from 82% a year earlier and 83% at the end of September. ANZ deposit-to-loan ratio increased to 92% from 90% a year earlier, albeit helped by its acquisition of insurer Suncorp's banking business.

Australia's largest bank, Commonwealth Bank of Australia, has a different reporting schedule.

The problem for banks is that the higher rates which entice savers put pressure on margins and profitability.

Most analysts are already underweight on Australian banks after shares outperformed the local market in 2024 as investors rotated into financials and out of mining stocks amid weaker commodity prices.

NAB's chief financial officer said that higher funding costs subtracted two basis points from its net interest margin for the six months through March. Half of that was due to increased spreads in short-term funding since March, he said.

"How this plays out over the second half of 2025 will have an impact on funding costs, but it is difficult to predict," NAB CFO Shaun Dooley said.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

May 13, 2025 00:51 ET (04:51 GMT)

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