Thursday 22 February 2018

Foreign banks soaking up deposits as loan books cut

Bailed-out banks still dependent on life support of €130bn central bank funding

Laura Noonan

Laura Noonan

FOREIGN banks are now almost twice as active in the Irish deposits market as they are on the lending scene, the latest data from the Central Bank reveal.

The news comes as the same monthly bulletin shows that Ireland's bailed-out banks are still turning to monetary authorities for a near-record €130bn of funding to keep their businesses ticking over.

The latest 'Money and Banking' statistics reveal that the few foreign banks left here shrank their Irish loan books by 12pc in April alone and now account for just 17pc of all loans to Irish residents.

The same banks house about 30pc of Ireland's private sector deposits, giving them some €45bn of funding from Irish companies and individuals.

The foreign banks' higher share of the deposits market is partly explained by the fact that banks like RaboDirect take deposits but do not lend.

Foreign banks, like Danske's National Irish Bank and Belgian-owned KBC, have also boasted of the growth in their deposit books as worried savers moved money out of Irish banks.

Money markets

Yesterday's figures show the six bailed-out banks are being propped up by about €130bn of cheap central bank funding, after suffering a collapse in deposits and being locked out of money markets.

The figure for April was marginally down on the €136bn support at the end of March -- largely because the Government has put €19bn on deposit with the banks in recent months.

April also saw the six banks' deposits from the Irish private sector lift for the first six months, bringing their levels from €106bn to €108bn.

The bailed-out banks' Irish loan books contracted by about €7bn over the month, a fall of just 2pc of their €321bn Irish loan book at the end of March.

The 'continuing banks' -- AIB, Bank of Ireland, EBS and Permanent TBS -- must reduce their net loans by some €70bn over the next three years, so they can cut back their reliance on central bank funding.

At the end of April, the six bailed-out banks were relying on some €74bn of money from the European Central Bank's 'main' operation, which lends money at rates as cheap as 1.25pc provided that banks have acceptable collateral.

The ECB said this week that it would continue providing unlimited liquidity under its 'full-allocation' programme until at least October.

After that, it may resume competitive bidding, which could ultimately force up the interest rates that Irish banks have to pay for the money.

The Irish banks are also relying on about €54bn of 'emergency' liquidity support from the Central Bank of Ireland, which allows them to draw money at interest rates of about 3pc using poorer quality collateral.

The so-called 'ELA' programme has to be regularly sanctioned by the ECB, but the Frankfurt institution has indicated it will continue to support the liquidity of Irish banks.

Irish Independent

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