Banks issue €8bn 'own bonds' as private deposits up 2.9pc
IRISH lenders issued €8bn of bonds this week before the expiry of a government guarantee that allows them to be used as collateral with the European Central Bank.
Bank of Ireland, the nation's largest lender by assets, and Permanent TSB printed €5bn and €3bn of the notes respectively this week, according to the National Treasury Management Agency.
The move to end the bank guarantee means it was the last chance for banks to create these bonds. The lenders will keep ownership of the notes, which they can exchange for ECB funding if needed.
"This is a very prudent move by the banks just before the guarantee expiry, giving them a collateral buffer, particularly after the uncertainty caused by the Cypriot bailout," said Owen Callan, an analyst at Danske Bank in Dublin. "Cyprus has shown how things can flare up."
Irish banks began issuing so-called own-use, or self-held, bonds in January 2011 to create collateral as they were locked out of public debt markets.
Reliance on these notes, which must be backed by a government guarantee for them to be eligible with the ECB, has dropped to €3bn in February from a peak of almost €18bn before the state completed a €64bn bailout of its banks in July 2011, NTMA data show.
Meanwhile, deposits by Irish residents in Irish banks rose last month but not as much as in January, according to the Central Bank. Private sector deposits rose at an annual rate of 2.9pc in February, following a 3.9pc increase in January.
Loans to households fell 4.2pc in the year to the end of February, following a decrease of 4pc in January.
Economist Alan McQuaid of Merrion Stockbrokers said the figures show there is a long way to go before the domestic economy gets moving again.
"The lack of available credit will severely hamper the overall recovery prospects for the economy as a whole." (Additional reporting, (Bloomberg)