Cash Cracks

Cracks are becoming visible in the wall of cash that has been building since the GFC hit with an increasing number of Australian investors intending to rebalance portfolios in 2011.

According to CoreData’s latest Australian Cash Report, the number of respondents looking to re-balance their portfolios to hold less cash has almost doubled in the last 12 months.

The report, which analyses the attitudes and decision drivers of investors in January 2011, revealed that 39% of those looking to move from cash into other assets said they would move into property, 26% into shares and 11% into management funds.

However, 15% remain undecided, a huge jump up from 2% in 2010, presenting a big marketing opportunity for Australian Deposit-taking Institutions (ADIs) wanting to attract new investors.

It appears that a sizeable proportion of cash-heavy investors want to re-allocate but do not know where to put their liquid funds and are waiting to be convinced by a proactive ADI on how they can boost their yield.

For example, Macquarie Bank, which currently has a $7 billion book and an extensive high-net worth client base, stands to benefit and easily increase this figure with a targeted high-rate campaign.

However the tier two Australian banks have a lot of work to do on the issue of ‘trust’ with an alarming disparity between them and the big four when it comes to the security of financial institutions.

More than half of the study’s participants (55%) rated the big four banks as ‘very secure’, while only 28% rated tier two banks as ‘very secure’.

The report canvassed the views of 300 participants.

Other key findings included in the report:

• Investors continue to choose retail deposits over other investment vehicles and will continue to do so if above 6% returns can be achieved with virtually zero risk
• Australians across the board believe the investing environment is improving with the average of respondents rating all “very secure” for all four sectors being higher in 2011 than it was in 2010
• Investors will hold less cash in 2011 with a quarter (24.3%) of all respondents looking to rebalance their portfolios to hold less cash, which is almost double the 13.4% in 2010
• The big four banks continue to gain market share, currently holding 72% of all ADI deposits, up from 59% three years earlier. Mutuals currently have a market share of 11.7%, down from 13.3% three years earlier, with tier two Australian banks falling to 10.5% from 17.7% over the same time frame, and foreign banks dropping to 5.8% from 10.4%
• In the second half of 2010, the retail deposit system accelerated with total ADI retail bank deposits now $553 billion
• Commonwealth Bank is experiencing an increase in attracting new retail deposits in the short term, boosting the book by $4.5 billion to $149 billion in just the last three months of 2010
• ANZ Bank increased the deposit book by $6.6 billion, or 10.6% to $68.7 billion, for the year to December 2010
• National Australia Bank is currently providing a much stronger focus on retail bank acquisition in Australia, and if the very strong recent inflows continue, then the bank will overtake ANZ Bank as the third biggest retail deposit holder within the next 12 months
• ING Deposit has received very little of the deposit pie in the last three years with its book only increasing by $100 million to $17.5 billion, when combined ADI’s increased by $169 billion
• Bank of Queensland is one of the stand-out tier two banking operations in Australia, performing very well in retail banking acquisition, both on the asset and liability sides

* The Australian Cash Report is released quarterly and is available for purchase. The theme for Quarter 1 2011 is deposit decision drivers.