Friday 15 December 2017

Secured funding cost for BoI down 20pc since July

Bank raises fresh e1.1bn of cash against UK loan book following its July success

Laura Noonan and Thomas Molloy

THE premium paid by Bank of Ireland (BoI)for secured funding has fallen more than 20pc since July, it emerged last night.

The news comes after BoI yesterday confirmed that it had raised €1.1bn of term funding secured against its UK loan book, mirroring a similar €2.9bn transaction in July.

The July deal was priced at 265 basis points, or 2.65pc, above the benchmark three-month Euribor rate.

The Irish Independent understands that yesterday's deal was priced at 210 basis points above three-month Euribor, implying a 21pc fall in the premium BoI is paying. The latest deal was for a term of just over three years, while the July issuances had an average maturity of 2.2 years.

Bonds with longer maturities typically have a higher interest rate.

Sources close to the bank described the latest deal as an "excellent result" pointing to the "more challenging" general economic backdrop of today's market.

No detail was given on the purchasers of BoI's latest debt, but the Irish Independent understands it was bought by one major international bank.

The actual interest rate BoI pays on the €1.1bn will come in at about 2.68pc, based on yesterday's 1.57pc rate for three-month Euribor.

The money isn't covered by the Government guarantee scheme, so the bank won't have to pay the guarantee fee.

Further secured funding transactions are not expected imminently as BoI no longer has significant levels of UK mortgages to issue funding against.

Funding deal

AIB has hinted that it will also seek to do a secured funding deal later in the year, while Irish Life & Permanent is gearing up to raise another £1bn against its UK loan book later in the year.

BoI's secured funding announcement came on the same day that ratings agency Moody's announced it was cutting BoI UK's deposit rating from Ba1 to Baa3.

The lower rating "no UK systemic support" follows Moody's reassesement of UK systemic support across all lenders.

Earlier Bank of Ireland economist Dan McLaughlin raised his GDP growth forecast to 1.5pc after the economy "surprised to the upside" in the first half of the year by providing the first consecutive quarterly gains in five years.

McLaughlin said exports would be the driver but dismissed the idea that consumer spending was being knocked back by excessive saving.

"Much is made of the rise in the savings ratio evident in recent years but we believe that the ratio has not changed much this year -- the fall in consumer spending reflects a significant squeeze on real incomes, as inflation has accelerated while earnings are still falling, albeit modestly," the economist added.

Irish Independent

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