Homeless: $60 billion

The latest data on retail deposits shows there is $60 billion in cash still waiting for a home, as continued uncertainty keeps investors sitting on the sidelines.

The big four banks are the beneficiaries of the ‘wait and see’ attitude; they still hold almost three quarters of retail deposits held by all ADI’s (72.2%).

The question on everyone’s lips is: where is this money going to go when it does – and it will – flow out of the system and is re-invested? Will it go direct; via financial advisers; or into superannuation?

Using June 2007 as the effective start of the GFC, burningpants affiliate CoreData calculated the approximate level of surplus retail deposits in the Australian banking system by applying a 10% annual growth rate.

At that time, there was $351 billion in retail deposits held by ADI’s, which should be equate to around $479 billion today if an historical 10% growth rate is applied.

But with the flight to asset class safety during the GFC, and as portfolio cash allocations increased, annual retail deposit growth spiked to over 20%.

Come September 2010, there is $539 billion in ADI retail deposits – $60 billion too much if you consider this figure from a historical perspective.

If a 7% growth rate was applied from the start of the GFC, then there is $140 billion in surplus deposits.

At some stage, all this cash will flow back to other asset classes, as investors increase the risk in their portfolios to increase the long term capital appreciation and dividend flow.

But in the meantime, the big four continue to benefit. Of the retail deposits held by ADI’s, mutuals account for just 11.4%, Tier 2 Australian banks account for 10.7% and foreign banks hold 5.7%.

Just three years, the market share scenario was completely different.

The big four banks held only 58.7%, Tier 2 Australian banks 17.4% (which still included St George), mutuals 13.6% (which still included Home Building Society, before the friendly takeover by Bank of Queensland) and foreign banks 10.4% (which included Bankwest).

Australians might love to hate the big four banks, but in times of trouble, like during the GFC when four of the nine AA rated banks in the world were Australian banks, we are glad they are there.

Figures in this article were referenced from the Australian Cash Report Q4, 2010, released this week and published quarterly.

For further information, contact CoreData on 02 9376 9600.