Bank deposits rise

By Frank Cho
Advertiser Staff Writer

Deposits at Hawai'i banks have soared more than $707 million this year, fueled primarily by jittery investors seeking a haven from a falling stock market.

Bank of Hawaii led all Hawai‘i financial institutions with a 3.4 percent increase in new deposits for the period ended June 30 — nearly $184.6 million more than a year ago, according to the most recent figures released last week by the Federal Deposit Insurance Corp. Photo illustration by Marha Hernandez • The Honolulu Advertiser

Central Pacific Bank was No. 2, with more than $152.4 million in new deposits. First Hawaiian Bank reported $107.5 million in new deposits, and American Savings Bank brought in $87.8 million.

Deposits at City Bank fell more than 4 percent, or $48.9 million, during the period, according to the federal figures.

The large increase in deposits comes as good news for the health of Hawai'i's financial institutions. In recent years, Hawai'i's crowded banking market and slow economy have made it difficult for banks to expand business locally without spending a lot for marketing and other promotions.

"People have not been very happy in the stock market, and the value of cash has gone down, so more people are just leaving their money in low-interest checking or savings accounts," said David Thomas, vice chairman of retail banking at Bank of Hawaii. "But what to me is the most exciting news about this is we are seeing significant growth in deposits for the first time in four years."

The surge in deposits tracks with national trends, where deposits at commercial banks grew by 3.2 percent, or $120.7 billion in the third quarter — led by a $92 billion, or 4.5 increase in savings deposits, according to the FDIC.

Still, experts warn that the inflow of cash will likely reverse as soon as investors begin to sense interest rates are on the rise again and the stock market has stabilized.

"You are seeing more demand for the safety of FDIC-insured deposits given the market volatility," said Don Horner, vice chairman of retail banking at First Hawaiian Bank. "Because rates are so low, there is less money movement because differentials are so low right now."

The sudden rise in deposit levels comes after several years of eroding market share at some of Hawai'i's biggest banks as customers have migrated to credit unions or smaller community banks.

Bank of Hawaii's presence has slipped from 31.07 percent five years ago to 29.43 percent this year, according to the FDIC. American Savings Bank's share has dropped from 21.27 percent to 19.44 percent.

Although the decline in market share is not overwhelming, banking experts said it is significant because much of the business may have gone to smaller banks that have been making strides in recent years in attracting small-business customers.

Deposits rose nearly 11 percent at Central Pacific Bank from a year ago, and the company's market share was nearly 9 percent, up from 7.6 percent a year ago.

"We have been enjoying that, as long as it is a sustainable trend," said Neal Kanda, executive vice president and chief financial officer at Central Pacific Bank.

Kanda said that for years, Central Pacific Bank was seen as a "Japanese" bank, and management has been working hard to broaden the bank's appeal.

"We feel we have been making some headway. We have been able to attract some customers from our competitors who perhaps would not have considered Central Pacific Bank before," Kanda said.

Credit unions have also been tough competition for large banks because of their generally low fees and favorable interest rates.

Hawai'i is home to 101 credit unions, and their membership has been growing rapidly.

"The rate differential between what we can offer and what the banks are offering has been shrinking in this low-interest-rate environment," said Dennis Tanimoto, president of the Hawaii Credit Union League, a not-for-profit trade association representing credit unions in Hawai'i and Guam.

Deposits, or member shares, at Hawai'i's federal credit unions have grown to a record $4.6 billion as of Sept. 30, up 12.2 percent for the year to date. Membership at the end of September reached 676,000, up 4.6 percent from the end of last year.

Nationwide, deposits at federal credit unions have risen to 8.6 percent of the total deposits in 2002 from 8.3 percent in 2001. During the same period, deposits at commercial banks slipped from 53.4 percent to 53.3 percent, according to figures from the Federal Reserve.

Though the typical credit union is relatively small, they are tax-exempt and often band together to aggressively expand products and services to draw members.

"That is one of the strengths of credit unions," Tanimoto said. "They tend to work together because many do not have the economies of scale to compete against the larger banks."

Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.