independent

Friday 18 April 2014

Banks lose €40bn over a month in deposits flight

Withdrawals accelerate as downgrades spook non-eurozone corporations and funds

AN unprecedented €40bn of deposits was withdrawn from Irish banks in December, dwarfing the flight in deposits earlier in 2010.

December's massive deposit exodus means a total of almost €110bn has been taken out of Ireland's 15 retail banks since the start of 2010.

The figures are revealed in monthly reports from the Central Bank, which show a marginal fall in lending in the year to December, as well as a €2.7bn fall in reliance on cheap cash from the European Central Bank (ECB).

The most dramatic element of the latest data, however, is the sharp acceleration in the fight of deposits from the so-called 'domestic group' of banks.

In November, the group of 15 banks lost €26.7bn and by December the monthly rate of deposit loss soared to €40.3bn.

Depositors from outside Ireland are withdrawing their cash at the fastest rate, pulling out more than €35bn in December and €91bn in the full-year.

Non-Irish deposits include cash from multinational companies doing business here and cash held by investment funds and pension funds.

The depositors have little motivation to keep their funds in Ireland, and many have been spooked into withdrawing money as the credit ratings of Irish banks deteriorated.

The impact has been most sharp for deposits from outside the euro area, which fell by almost €34bn in December and €81bn in the full year.

Deposits from the euro area, which held up quite well until September, dipped €1.4bn in December bringing their total fall for 2010 to just over €10bn.

The latest data also shows Irish companies and individuals are continuing to pull their funds out of our retail banks.

In December, almost €5bn of deposits was withdrawn by Irish residents, bringing the full-year tally for Irish withdrawals to €18.5bn.

The private sector, including non-financial companies and ordinary bank customers, took out €3.3bn in December and €19.1bn in the full-year.



Lending

Deposits from general government, including semi-states, remained largely stable, as did deposits from financial institutions.

Banks have dealt with collapsing deposits by increasing their reliance on funds from the ECB, and emergency cash from Ireland's Central Bank.

Yesterday's data confirms the ECB's support to the domestic group fell by €2.7bn to €94bn in December.

The year-end position is still well ahead of ECB advances at the start of 2010, when supports were €58.5bn. Emergency support from the Central Bank of Ireland totalled about €49bn, up from €43bn in November.

Yesterday's figures also show another contraction in banks' lending, as loans to households fell by 5.2pc and loans to non-financial companies fell 1.2pc in the year to December.

"There is very little good news in these latest banking figures," said Bloxhams' chief economist Alan McQuaid.

"Until the banking sector crisis is fully resolved and things improve on the labour market front then the supply/demand for credit will remain subdued."

Irish Independent

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