Figures released by the Central Bank of Ireland (CBI) today show that in the month of May 2012, the reliance by Irish banks on central bank funding fell after what seems like a blip in April 2012, where against trend, reliance increased*. Lending by central banks to Irish banks comprises lending directly from the ECB and lending from the CBI. In total overall lending has reduced by €2.2bn in May 2012 from €128.2bn to €126bn. Lending directly from the ECB fell by €2.3bn in the month of May 2012, from €86.8bn to €84.5bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA rose marginally by €0.1bn, from €41.4bn to €41.5bn.
What does this mean for Irish banking and the wider economy? If our banks are to return to some degree of normality, they will rely more on deposits from customers and lending from other banks. So today’s figures indicate – though don’t absolutely prove – that deposits and inter-bank lending are increasing which suggests an improvement in confidence and good news. Overall the trend in Irish banks appears to have been positive for the past 11 months, with deposits stabilising and growing slightly whilst reliance on the ECB has declined. This is positive news, particularly given the jitters in other EuroZone countries, such as Spain, Greece and Italy.
It is worth pointing out that ECB direct lending to Irish banks today stands at €85bn. This compares with a €3tn ECB balance sheet, and indicates that Irish financing arrangements are now proportional to our economy, and that the ECB is no longer providing “unprecedented” support to Irish banks.
We will get deposit information on Irish banks for May 2012, at the end of June. Deposit analysis for Irish banks for April 2012 is available here.
*The figures published at the top of this blogpost should a decline in central bank funding in April 2012 but this is due to the CBI separating out ELA from its “Other Assets” heading, and it seems that there were €2.3bn of “Other Assets” that were unrelated to funding the domestic banks. So although the figures show a decline in April of €1.9bn, of this €2.2bn is a reclassification and the correct figure is an increase of €0.3bn.