Australian banks' funding gaps narrow in 2H15 but at a slower pace

Deposit quality has also improved.

According to Moody's, the domestic operations of Australian banks have continued to narrow their funding gaps -- i.e. the proportion of loans not funded by customer deposits -- in the half year ended 30 September 2015 (“2H2015”), although at a slower pace. Deposit growth was sustained at a slightly higher rate than loan growth for the period, but the differential narrowed.

Here's more from Moody's:

Owner-occupier loan growth started to offset declining investment loan growth. Housing net credit growth increased slightly. Investment housing loan growth slowed in response to the Australian Prudential Regulation Authority (“APRA”) imposing a 10% annual investor lending growth cap, as well as tighter serviceability criteria. However, owneroccupied loan growth has picked up.

Corporate sector lending grew faster, suggesting business lending conditions eased as a result of low interest rates and increased competition among lenders, including foreign banks. However, despite a Federal Government leadership change, so far, businesses remain cautious, as evidenced by subdued corporate lending commitment growth.

Deposit quality has improved, following the implementation of the Liquidity Coverage Ratio (LCR) regime. The LCR has incentivized banks to focus on stable deposits. In particular, the banks have moved away from less-reliable, non-transactional corporate deposits.