Friday 23 March 2018

Lenders' reliance on funding from Central Bank down €5.7bn

Laura Noonan

THE Irish banking system's reliance on Central Bank funding dipped by €5.7bn last month, but market sources said the improvement was linked to IFSC banks and had nothing to do with domestic institutions.

The sizable drop was revealed in the Central Bank of Ireland's monthly balance sheet, which showed that the banking system had €181bn of Central Bank liquidity flowing through it on March 25.

The figure was down some €5.7bn from a record high a month earlier, suggesting banks had found alternative ways to fund themselves by selling assets, raising deposits or issuing bonds.

Anglo Irish Bank last week revealed that its Central Bank funding had risen from €45bn at the end of last year to €56bn more recently, after the bank transferred its deposit book to AIB. That transaction would have reduced AIB's dependence on central bank money, but would not have lowered the systemwide figure since AIB's reduction was effectively offset by Anglo's increase.

It is understood that AIB had no other meaningful change in its overall demand for central bank money, and that Bank of Ireland has also not dramatically reduced its central bank dependence.

"It looks to me like an IFSC bank, through structured financing or something like that," said one market source.

"I don't think it could be Irish related -- the figures were done before the stress tests results (on March 31) so certainly no money was coming into the domestic banks before then."

The Central Bank declined to comment on whether the developments related to Irish or foreign-owned banks, but the picture will become cleared when more detailed data is published over the coming weeks.

Yesterday's figures also showed a fall in the emergency liquidity provided by the Central Bank of Ireland to Irish banks who don't have enough high-quality collateral to get money from the European Central Bank.

The amount of that emergency funding, dubbed ELA, fell by €3.2bn to €66.7bn in March 25. The funding migrated to the ECB's 'main' operations after Irish banks "restructured" some of their collateral.

It is understood that about €2bn of the switch involved Bank of Ireland, which will now pay 1pc to get money directly from the ECB instead of paying 3pc to get money through ELA.

Drawings from the ECB now stand at €114.5bn, including €26.9bn from the 'main' auction, which takes place every week, and €84.2bn from the 'longer-term' facility which offers 90-day money.

The ECB has been offering banks unlimited liquidity -- subject to adequate collateral -- since the crisis hit, but has repeatedly spoken of the need to wind down the "non-standard" measure and tackle "addicted bidders".

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business