Malaysian financial institutions have resumed the battle for a share of the fixed deposit market. Public Bank, AmBank, RHB Bank and Malaysia Building Society Bhd are among those that have introduced their campaigns, offering fixed deposit rates of 4% to 4.28% for tenures of 6 to 12 months.

While the promotion is open to individuals, sole proprietors and partnerships, a higher minimum placement of RM50,000 is required. To qualify for the rates, the funds must be locked in for at least three months. However, the rates will revert to the board rates of 3.25% (for 6 months) and 3.35% (for 12 months) when the promotion ends.

According to a local banking analyst, the race for fixed deposits is on again because banks are required to comply with Bank Negara Malaysia’s liquidity coverage ratio, which takes effect in June 2015. “The liquidity coverage ratio will ensure that banks have a certain proportion of high quality liquid assets. It will also require banks to put a greater emphasis on retail deposits, which tend to be ‘sticky’ in nature,” he says.

The analyst explains that retail deposits are deemed “sticky” because there is a strong likelihood they will be kept untouched in the bank, unlike corporate deposits where there is a higher possibility of withdrawals.

“This ratio is not something new, even though it is still a concept paper at the moment,” he says, adding that the liquidity coverage ratio will further strengthen existing capital and liquidity standards for local banking institutions.

Another banking analyst attributes the competition for fixed deposits to the high loan-to-deposit ratios of banks, which have averaged 86.6% this year. This has pressured banks to increase deposits before the liquidity coverage ratio is implemented.

“There is no saying what a normal loan-to-deposit ratio is, but the last time the ratio was this high was in 2002. The ratio came down after the global financial crisis in 2008, but it has been climbing steadily since.”

Kelvin Ong, a research analyst at MIDF Investment Research, is of the opinion that banks are making their move ahead of a possible hike in the overnight policy rate next year which, in turn, will cause fixed deposit rates to rise. “I think this is the banks’ strategy to offer customers a higher fixed deposit rate to lock in long-term deposits earlier,” he says.

In August, banks also offered promotional rates for fixed deposits, citing concerns about the high loan-to-deposit ratios.