While the ANZ was boosting bank shares
yesterday with a strong profit outlook, I was opening a letter from those nice
people at ING Direct who want to pay me 6.4% if I lend them money – a
step up in the deposit war from the 6% BankWest has been doing for new
customers..

Neither ING nor BankWest are shonky
mezzanine finance outfits – they are very large and respectable
Dutch and Scottish banks. They are
also two of the three outsiders promising to make life increasingly difficult for
the local money lenders.

Of course, there is a catch or two with this
6.4% offer – it’s only for how much you increase your ING Direct
account balance over its February 17 level and it only runs for three months
from March 1. Otherwise they pay 5.4%. It’s still a pretty good deal
considering ING can borrow for much less on the inter-bank market – and how
little the Australian banks are willing to pay for deposits.

Australia’s big banks are all doing very nicely and will continue to do so,
which is a good thing for the economy as a whole and their shareholders in
particular. And just about everyone with a superannuation fund is a bank
shareholder.

But after a decade-long phoney war about
tough competition, things are starting
to warm up for them. The three foreigners, ING, HBOS (BankWest’s parent) and
GE, really are going after market share in both credits and debits, meaning the
big banks are going to be increasingly squeezed on both sides of their
ledgers.

A large part of the banks’ success has been
the pool of cheap money deposited with them. ING and BankWest are
siphoning off the cream from that pool. If you can get 6.4% for no
fees, you’d be
mad leaving money with one of the old banks for almost nothing.

The trend will continue. Slowly and
reluctantly, the Big Four are addressing it, begrudgingly coming up with better
deposit offers. None is in the ING or BankWest league though.

At the same time, the newcomers’ competition
is not only keeping a lid on what the Big Four can lend at, but threatening to
unleash another round of margin cuts, particularly in the home loan market.
Hence the squeeze – the banks will be borrowing for more and lending for less.
It’s a one-way bet.

But don’t worry too much about what might
happen to the big Big Banks’ profits and the matching CEO pay packets. They’ll
just put up fees on everything else.