Jan 6 (The following statement was released by the rating agency)
The increased use of deposits as a funding source
for U.S. finance companies diversifies their funding profiles but, in a rising
rate environment, also introduces outflow risk that can affect the funding of
business activities, according to a Fitch Ratings report published today.
Outflow sensitivity is expected to be more significant for finance companies
relative to traditional banks given that their deposit platforms are relatively
new, tend to lack long-term customer relationships, and are predominantly
centered on gathering deposits online.
As part of this analysis, Fitch reviewed the U.S. deposit platforms of the six
large deposit-taking U.S. finance companies, representing approximately $191
billion of aggregate deposits as of Sept. 30, 2013: Ally Financial (Ally),
American Express Company (Amex), CIT Group (CIT), Discover Financial Services
(Discover), General Electric Capital Corp. (GE Capital) and SLM Corporation
Of the institutions reviewed, Fitch believes Ally's deposit platform is best
positioned to withstand a rate rise give its focus on low balance retail time
deposits, while not offering an above-market interest rate. The other
institutions exhibit a combination of deposit sensitivities and offsetting
factors, with no company being at material risk, according to Fitch's review.
Fitch does not expect the financial profiles of finance companies to be
materially affected by potential deposit attrition in a rising rate environment.
Finance companies can seek to stabilize deposits by increasing their offered
rates, although this comes with its own costs and risks.
On the positive side, Fitch notes that in a rising rate environment, finance
companies could benefit from net interest margin expansion, at least over the
near-term, to offset increase deposit costs.
The full report 'FinCo Deposit Sensitivity to Rising Rates' is available at