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March 13 (Reuters) - (The following statement was released by the rating agency)
German wholesale banks’ move into the internet savings market to diversify their funding structure could be positive for their credit profiles and help them meet Basel III liquidity requirements, Fitch Ratings says - although a shift towards retail deposits would increase funding costs in the short term.
Diversification of funding is credit positive for wholesale banks, especially if the duration of deposits is extended. For example, Deutsche Pfandbriefbank’s pbb direkt extended its term deposit accounts to five and 10 years, even though most of the savings volume is for one and three years. Retail deposits can help wholesale banks meet Basel’s Net Stable Funding and Liquidity Coverage ratios because deposits of less than a year have a higher weighting than short-term wholesale funding for the treatment of stable funding.
But deposits originated through the internet tend to be price sensitive. Competition is likely to remain intense, so a shift from cheaper unsecured institutional funding to retail deposits will put pressure on net interest margins. In addition, it is uncertain how these funds, which do not offer a broad customer relationship, will react in times of stress.
Internet deposits appear to be growing faster than traditional, branch-based ones in Germany. Deposits from individuals grew 28% to EUR1.8bn at end-2013 from EUR1.4bn at end-2007. But some sub-segments have been more aggressive with internet deposits. Deposits for regional banks, which include direct banks, grew 54% to EUR308bn. Specialised real estate lenders’ deposits increased 2.9x to EUR4.9bn. Internet deposits collected by non-retail banks are not yet material, but could prove important for individual banks in these two segments.
Specialised real estate lenders fund themselves in wholesale markets, including Pfandbriefe, but are now gathering internet deposits. Last week, Deutsche Pfandbriefbank announced that deposits at pbb direkt, launched in March 2013, exceeded EUR1bn. IKB has attracted deposits from around 50,000 private customers via its online offer and Corealcredit Bank entered the market in 2012.
Collecting German retail deposits through direct banking channels is relatively simple once compliance and operational processes are dealt with because of the strength of the deposit and institution protection schemes. Foreign banks were ahead of domestic banks in this market and very successful in building up a deposit base early on.