Big 5 banks' increased total funding by $16.3 bln in the June quarter as they loaded up on wholesale money

Are the major banks building a rainy day fund?

They've certainly been bolstering their funding positions as demonstrated by the latest quarterly analysis of the big five banks' finances from PwC. This shows total funding surged $16.3 billion during the June quarter, outstripping gross lending growth of $7.4 billion by $8.9 billion. 

The PwC figures show of the total funding growth just $2.8 billion, or slightly over 1%, stemmed from retail deposits, taking them across the five banks - ANZ, ASB, BNZ, Kiwibank and Westpac - to $241 billion. Non-retail deposit funding surged by $13.5 billion, or almost 13%, to $118.6 billion.

PwC partner and banking and capital markets leader Sam Shuttleworth told interest.co.nz the wholesale funding increase has led to rises on the banks' balance sheets in areas such as other interest earning assets, liquid assets, and available for sale assets.

"So it could be an element of there's some cheap funding given turmoil in international markets so they're taking the cheap funding now to be used later," Shuttleworth said. "Alternatively another option is, of course, because of the turmoil offshore (there's) volatility with various regions including China, maybe we (the banks) take the funding now because who knows whether there might be a small dislocation in the markets at a later date?"

"This could be a good example of future proofing, or forward planning capital requirements and funding requirements. Taking onboard now to be used later," said Shuttleworth.

"When you look at what has moved on the balance sheet it appears to have largely gone into other liquid assets to indicate possibly either increasing their liquidity, or just parking it there to be deployed when its needed with the consistent lending growth that's occurred over the last 12-18 months."

The PwC analysis comes after the latest Reserve Bank core funding ratio (CFR) data, out last week, showed the combined CFR across locally incorporated banks at an all time high of 88% at the end of July. The CFR requires banks to meet a minimum share of their funding from retail deposits, long-term wholesale funding or capital. Individual banks must maintain a minimum CFR of at least 75%.

From May to July core funding at the banks increased by more than $6 billion, or 2.1%, to $291.650 billion, just $39.942 billion less than their $331.592 billion worth of total loans and advances.

Looking ahead to what to expect from the big five banks' financial performance for the rest of 2015, Shuttleworth said impairment losses could rise given a softening economy. Overall some "downwards pressure" is expected on bank's financial performance, Shuttleworth said.

Despite funding volumes growing at more than twice the rate of lending in the June quarter, the 2.27% lending growth topped the 1.9% of the March quarter, and was higher than in any quarter of 2014.

In the March quarter the big five grew total funding by $5.7 billion, or 1.7%, and gross lending by $6 billion, or 1.9%.

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