UK Banks Face Intensifying Deposit Competition and Funding Outflow Pressure

According to Jin10, deposit competition, rather than bank taxes, rising interest rates, inflation or artificial intelligence, was the focus of third-quarter earnings reports from major UK banks. UBS analyst Jason Napier said during Lloyds Banking Group’s earnings call that deposits had become “investors’ top concern.” Other analysts even apologized for repeatedly asking about deposits. The banks’ reports underscored the intensity of the competition. In the three months ended September 30, Lloyds’ UK retail savings deposits fell by £300 million, and NatWest Group’s private banking and wealth management deposits declined by a similar amount. Barclays’ UK corporate banking deposits fell by £2 billion from the previous quarter. HSBC Holdings said a key profitability metric remained stable, but new competitive pressure for customer deposits in markets including the UK offset some of the positive effects. Deposits are a source of funding that costs banks less than wholesale financing, which involves borrowing from sources such as institutional investors. Banks use deposits to make loans and earn income. A smaller deposit base means banks must either reduce lending or take on higher funding costs.