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Noonan says deposit flows have reversed on stress test

THE banking bailout announced last Thursday has already triggered a "significant improvement" in the deposit bases of AIB and Bank of Ireland, Finance Minister Michael Noonan claimed yesterday.

The bullish statement was made in the Dail, even though both banks are banned from disclosing financial information ahead of their full-year results announcements next week. Noonan said "confidence was a fragile flower".

In a spirited defence of the €24bn capital injection announced last week, Mr Noonan said the Financial Measures Programme was already paying dividends across a range of areas.

The volume of deposits withdrawn from the banks since Thursday had "been very significantly reduced", he said, adding that the "net deposit position" of AIB and BoI had "improved significantly".

It is understood the banks have not seen a major surge in deposits in recent days, but the deposits have marginally outstripped withdrawals, delivering a "net deposit" boost.

Both AIB and BoI declined to comment, citing the 'closed' period ahead of the results announcements next Tuesday (AIB) and Thursday (BoI).

Mr Noonan also pointed to the 42pc surge in BoI's share price between Friday morning and early yesterday as evidence that the bailout was working, along with increases in AIB's stock. However, both banks closed down yesterday, with AIB's shares dropping 8pc and BoI ending the day down 7pc.

Meanwhile, the interest rate demanded by investors to hold benchmark 10-year Irish government bonds has fallen from a high of more than 10pc to less than 9.2pc and the bailout won praise from powerful ratings agencies.

"I appreciate that confidence is a fragile flower that can fade under the stress of international events," Mr Noonan told the Dail. "The initial response is, however, very positive and this is to be warmly welcomed."

Mr Noonan stressed that a key measure of the package would be the banks' ability to begin lending normally to businesses and individuals.

He promised the Government would make every effort to restore credit to businesses.

The Irish Banking Federation has requested meetings with several ministers to assess ways to improve the flow of credit. The first such meeting with Junior Minister John Perry will take place next week.

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