Friday 17 January 2020

Irish banks fail to share in improved market mood

Laura Noonan

THE European banking sector is dramatically reducing its reliance on cheap central bank money but Irish banks are still heavily dependent on European Central Bank (ECB) funding

The ECB yesterday offered some hope to the markets by confirming that banks had drawn down just €131.9bn of three-month money.

The figure was well below analysts' expectations, with a survey by Reuters pointing towards a consensus of €210bn.

The money lent out is also significantly lower than the €442bn of 12-month ECB funds that banks had to pay back yesterday.

In a note to clients, NCB economist Brian Devine said the figures showed that Irish banks were more reliant on ECB funding than their peers.

The ECB has been flooding European banks with money and demand for central-bank loans is seen as a litmus test of the financial markets.

"It (the low demand) suggests that while there are certainly stresses in the system in some regions, it's not as bad across the board as people thought," said Nick Kounis, chief European economist with Fortis Bank NV in Amsterdam.

Other analysts pointed out that the €442bn of 12-month money that expired yesterday was "never going to be repeated" since some institutions had only taken it out "as a buffer".

The ECB said it lent money to 171 banks. Nationalities are not broken down but demand for Central Bank money has been highest in Spain, Portugal and Greece.

The demand from Irish banks is unclear but separate figures released yesterday show that Irish financials increased their reliance on central-bank funds between April and May.


At the end of May, Ireland's mortgage lenders, who represent the bulk of the country's non-IFSC banks, were holding deposits of €44.7bn from the Central Bank, some €5.6bn higher than the figure at the end of April.

The entire Irish financial system finished May with Central Bank deposits of €92.6bn, up some €11bn from April.

The increase in demand for short-term funding was particularly stark. ECB one-week deposits almost doubled from €7.9bn in April to €15.6bn in May.

"In Europe tier-one banks, such as Deutsche and BNP Paribas, are having an easier time getting funding, so there is lower reliance on European funding generally," said one Dublin analyst.

"However, that hasn't really flowed through to second-tier banks yet. It's not just in Ireland, all across Europe the money markets are only open for the really strong names and liquidity generally is still bad."

According to Mr Devine's analysis, banks domiciled in Ireland have 11.6pc of ECB funding, even though Irish banks only account for 1.6pc of the ECB's capital.

IFSC-style "resident financial institutions" based in Ireland hold only 4pc of the Euro area's financial institution assets.

"Thus, even adjusting for this fact highlights the relative reliance of Irish institutions on the ECB," he concluded.

Yesterday's balance-of-payment figures from the CSO show Irish financial liabilities outside the IFSC financial services centre fell by €29bn during the first three months of the year.

This brought the total reduction to more than €78bn since the decline began in the third quarter of last year.

As well as a loss of some corporate deposits, it may also include reductions in bank borrowings on money markets and the winding down of UK bank operations in Ireland, analysts say.

Irish Independent

Also in Business