Saturday 23 July 2016

Savers pull €1bn from vaults of AIB as interest rates plunge

Donal O'Donovan and Charlie Weston

Published 11/11/2014 | 02:30

Pedestrians pass a branch of the Allied Irish Bank (AIB) in Dublin, Ireland
Pedestrians pass a branch of the Allied Irish Bank (AIB) in Dublin, Ireland

SAVERS withdrew €1bn from AIB in the three months to the end of September as interest rates plummeted.

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Saving is in decline right across the banks, with water charges and the attitude of the Government to savers blamed for the drop.

Even with the exodus of deposits, state-owned AIB continued to clock up profits in the three months to the end of September, boosting prospects it will return to private hands, probably starting next year.

Worryingly for savers, however, profit margins increased at the same time as the value of deposits declined. AIB's key net interest margin - the difference between what it charges borrowers and what savers earn to keep money in the bank - increased to 1.64pc at the end of September from 1.6pc.

That is good for the bank, but bad for customers who are currently achieving little by keeping money in savings. AIB pays 0.5pc interest on demand deposit accounts.

Bank of Ireland, Ulster Bank and Permanent TSB pay just 0.01pc. It came as new survey results showed that only three in 10 households are saving regularly - the lowest level in around 10 months.

The proportion of people saving regularly decreased to 32pc, down from 37pc last month, and is the lowest level recorded since August 2013, according to the Nationwide UK (Ireland)/ESRI Savings Index.

The decline is most apparent among the over 50s. The index, which measures overall sentiment towards saving, decreased to 94 in October, down 20 points on September.

Managing director of Nationwide UK (Ireland) Brendan Synnott said water charges were also a factor.

"This month it appears that the planned introduction of water charges, which has dominated the news recently, is reflected in the negative sentiment on government policy towards saving, which in turn, has driven the decline in the savings index."

Specialist bank Investec is to cut the rates to 0pc on two of its accounts.

The bank sent a note to brokers pointing out that from January 2 the rate on its Euro Call account will drop from 0.05pc to 0.00pc.

The rate on its USD Call account will fall from 0.10pc to 0.00pc.

AIB is profitable, the bank said yesterday when it released financial results for the nine months to the end of September, though without providing a specific figure.

The improving situation was boosted by a sharp rise in profitable new lending - including €800m of mortgages, with total loan approvals up 40pc to €9bn.

But the results were also up thanks to paper profits the bank racked up as a result of rising property prices.

The results show that over-all lending at AIB declined to €64.7bn in the period, while the value of personal and business deposits fell by €1bn to €66bn.

Eamonn Hughes, an analyst at Goodbody Stockbrokers, said the results were positive for the bank and for taxpayers' prospects of getting some of the €20bn AIB bailout back - by selling shares in the bank probably some time next year.

AIB was under more pressure to lend out cash than to attract new deposits, he said.

Irish Independent

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