Springtime is traditionally a time when banks and credit unions focus on attracting new customers through deposit focused strategies. This month we look at the winners and losers of market share and the programs that drive share growth.
• There has been a significant shift in favour of term deposits over the last year. The 14.5% growth over the last 12 months is more than half of that achieved over the last 5 years.
The trend is opposite for banks and credit unions. Credit Unions are gaining share of demand deposits and losing share of term deposits and vice versa for banks. There are a couple of factors driving this trend:
This table shows high rate savings accounts as a spread to prime – notionally the margin each bank makes on their deposits. The lower the margin, the better to rate to the consumer. The change column indicates how the spread has changed from a year ago. Red means the rate to consumers have improved relative to prime whereas green means the rate has worsened for consumers relative to prime. There are a few banks that have significantly improved their offers while most have opted to improve spreads on high rate savings accounts.
Banks have advantaged access to the broker channel for term deposits. The broker channel comprises full-service investment dealers and financial planners. Since banks dominate the full service and discount brokerage businesses, they are well-positioned to offer aggressive GIC pricing to investing customers. This enables them to address their funding requirements at the margin without re-pricing their whole portfolio. Credit Unions only have limited access to these channels.
This table shows total personal demand and term deposit balances, share and changes in share over 3, 12- and 60-month periods.
- Home Equity Bank provides reverse mortgages. Their mortgage portfolio has grown 30% in the last 12 months thus driving the need for deposit funding.
- Home Trust gathers deposits directly from consumers through their Oaken Financial (part of Home Bank) subsidiary. Home Bank deposits have increased almost $1B (59%) over the last 12 months. This demonstrates the effectiveness of a direct capability offering aggressively priced demand and term deposits with heavy advertising support.
- Equitable Bank has been the consistent direct channel pricing leader for High Rate Savings Accounts (second only to Motive Financial (Canadian Western Bank) in Alberta. They also access the deposit broker channel for their funding needs at the margin.
- The Canadian Western Bank share growth is driven by the aggressive pricing (2.80%) of the Motive Financial Savvy Savings Account.
- Manulife Bank growth was initially driven by aggressive pricing in the term deposit broker channel. More recently growth has been driven by their all-in-one Advantage Account that pays 1.50% on both chequing and savings account balances.
- The major bank share gainers growth has been mainly driven by term deposits through both the branch and broker channels.
- Those losing share are opting to improve margins on their High Rate Savings Account offers while also modestly participating in the broker channel for term deposits.In summary, price and broker channel participation are the main drivers of deposit share growth.
- In summary, price and broker channel participation are the main drivers of deposit share growth.