The true face of deleveraging the banks in Ireland in 2011

Take a look at the screen-grab of the main webpage of Permanent TSB, one of Ireland’s major financial institutions.

PTSB has over 80,000 of the 792,000 extant mortgages in the State. Banking market-share statistics are hard to come by in Ireland but it seems that only four years ago PTSB had a 20% share. Its accounts for the first six months of 2010 would seem to indicate its share of new mortgage lending is now less than 5%.

Permanent TSB is part of the Irish Life and Permanent group and is one of the six State-guaranteed financial institutions. The State guarantee is acknowledged by the European Commission to be a form of state aid.

ILP has a loan to deposit ratio of 240% and is likely to be the institution with the most challenging deleveraging target under the IMF/EU bailout. A prediction on here some time ago was that the term “deleveraging” would enter common usage amongst the general population in 2011 as the true impact of reducing loan to deposit ratios became clear. And two of the key ways in which a financial  institution can deleverage is to increase deposits or reduce lending. So take a look at the PTSB main web page again.  You’ll notice the following:

(1) The emphasis is on increasing deposits through (a) current accounts (b) savings accounts (c) debit card services (note: not credit card services). And notice the interest rate available for 1 year euro deposits – 3.5%. Compare that with Germany which you’ll be lucky to get half that (these are two German banking comparison websites here and here)

(2) There is no mention of credit, save for the “Mortgage Repayment Difficulties” banner. The biggest mortgage lender in the State (by reference to number of mortgages outstanding) is no longer pushing its mortgage products.

Last week PTSB raised its standard variable mortgage rate by 1%. There was an entry on here asking whether PTSB was distorting competition in the State as its survival depends on state-aid in the form of the guarantee and yet this financial institution is increasing rates on mortgage holders, many of whom will be in negative equity and are unable to switch to lower cost providers (foreign-owned KBC’s standard variable rate today is still 3.85% for example). It remains noteworthy that our National Consumer Agency has failed to implement a term of the EC approval of the Bank of Ireland restructuring plan, namely to put a mortgage comparison section on its finance website, itsyourmoney.ie which was required at the end of 2010 by the EC but still has not been implemented.

Yesterday PTSB decided to increase its interest rates for its various fixed rate mortgages, the most eye-watering was a 3% increase on a 7-year fix from 6.1% to 9.1%. “Effectively people are being forced into accepting variable rates” said Rachel Doyle, director of Professional Insurance Brokers Association according to the Irish Times.

As the other Irish banks deleverage according to IMF/EU imposed targets, we can expect to see more of this – increased marketing aimed at getting deposits and deterring lending. That’s how you deleverage.