High borrowing rates may hit banks’ cost of funds

Q4 LIKELY TO REFLECT FULL-QUARTER IMPACT OF DEC 5 RATE CUT

- CHRISTINA TITUS

ELEVATED MARKET BORROWING rates are likely to exert pressure on banks’ cost of funds in the January-March quarter, said bankers and analysts.

Credit growth outpacing deposits mobilisation has driven banks to heavily tap certificates of deposits (CDs) from the third quarter, with some lenders aggressively pursuing market-linked institutional deposits as well.

The higher supply pushed up the rates higher, making funding expensive for banks to meet the credit demand. The one-year CD rate rose 62 bps to 7.33% since January, while one-month CD increased 189 bps to 8.11%, according to Bloomberg. Higher funding costs are emerging despite the central bank’s 125 bps rate cuts over the past year. The one-year CD to treasury bill spread has hit historical highs of 167 bps, versus the typical 70-90 bps range.