The Central Bank of Ireland (CBI) initiatives to improve transparency in Irish banking continue with the publication of new quarterly statistics on consumer lending and deposits at Irish banks (that includes the so-called covered institutions or state-guaranteed banks, AIB, Anglo, Bank of Ireland, EBS, INBS and Irish Life and Permanent and also the local branches of foreign banks and also credit unions but excluding the Post Office).
The new statistics exclude most lending to businesses, and we can see for the first time how households are engaging with the banking sector. The
(1) In March 2011, there were €87bn of deposits in Irish banks. Now while that is down from the peak of €95bn in March 2009, it is still €13bn more than in March 2007. Remember that these figures are for all Irish banks and they don’t indicate the scale of transfers from the state-guaranteed banks to local subsidiaries of foreign banks. Incidentally it is not clear why there was a 16% increase in deposits between Q4,2008 and Q1,2009 and a query has been submitted to the CBI.
(2) The late Brian Lenihan commented last year that deposits in Irish banks were sticky becauseIreland is an island and he seems to have had a point. Deposits are down by 6% or €5bn in the last 12 months. Now that is a significant outflow but with €87bn remaining, it hasn’t quite been the run sometimes reported. Again though, we don’t a split of how deposits have fared between state-guaranteed banks and local subsidiaries of foreign banks.
(3) With just over 1.5m households in Ireland, the average deposit per household is €60,000. Of course there will be skewing and many households may have no deposits. On the other hand those with millions of euros may have moved their deposits to what they perceive to be safer havens. So when Minister Noonan last week called for us to open our wallets to go shopping, he mightn’t have been as insensitive as he was widely perceived to be.
(4) Those €87bn of deposits might become very attractive to a government which is running out of options with closing the deficit; with the ruling out of income tax increases or cuts to social welfare and presumably our corporate tax arrangements will remain as they are, the government will have to raise €3.6bn-plus next year through cuts to the public sector and what we might term stealth taxes (property, water, community). And with the precedent of imposing a levy established with the pension levy to fund the Jobs Initiative and with a further wealth tax to be introduced (the property tax), then sizing up deposits for a contribution might become feasible as well as attractive, through presumably the ease with which deposits can be moved would be an obstacle to such a tax.
(5) €85bn of the €99bn of outstanding mortgage lending is floating rate, not fixed. So Irish mortgage holders are particularly vulnerable to ECB and banks’ own changes to interest rates. This is likely to be an issue as the ECB is expected to continue to increase interest rates over the next two years. The chart below shows the history of ECB interest rates, and although we have gotten used to low interest rates since the financial crisis in 2008, the main European economies are growing with inflation ticking up so we might find ourselves at the receiving end of unwelcome interest rate rises. According to The Economist magazine “mortgages in southern Europe andIreland are typically variable-rate, whereas fixed-rate housing finance prevails inGermany andFrance” Less than 2% of Irish mortgage lending has a rate that is fixed for more than five years.
(6) Buy-to-let comprises 25% of total outstanding mortgage lending and 90% of it is floating rate.Holidayhomes comprises 1% of total outstanding mortgage lending and over 90% is floating rate.
(7) In March 2008, there was €125bn of total mortgages outstanding. That had shrunk to €99bn in March 2011, with an €8bn reduction in one quarter, Q4 2010 accounting for one third of this decline. It is not clear why there was such an apparent repayment of mortgage debt in that quarter and the matter has been queried with the CBI. Remember also that new mortgage lending has practically ground to a halt with just €577m being advanced in new loans in Q1,2011.
In addition to new quarterly statistics on private household borrowing and deposits, the CBI yesterday also introduced new quarterly statistics for Irish businesses showing borrowing and deposits. Of note:
(8) The outflow of deposits from Irish companies from Irish banks has been far more pronounced than with private households. In the past year alone, deposits have dropped by 18% (from €93bn to €76bn) and business deposits are now back at December 2004 levels.The pace of decline hasn’t eased.
(9) Business lending is down 30% in the past year from €144bn to €100bn; that excludes so-called “financial intermediation” lending like NAMA and is probably a more representative measure of lending in the economy. However there was actually a small increase in net lending in the first quarter of 2011, the first increase since just before the financial crisis blew up in September 2008.
NAMA Wine Lake 
Hi,
I can shed some light on the deposit jump. I asked the CB about his before and it seems to have come from a re-classification of small businesses (sole traders etc) to ‘private sector’ from ‘corporate’.
@Lorcanrk, thanks for that, but as I understand it, these figures exclude non-incorporated businesses (sole traders, partnerships) that had been lumped in with households for monthly Money abd Banking report. The CBI hasn’t responded yet but I see that credit unions were included in the Money and Banking reports for the first time in Q1, 2009, so it might be credit union deposits. Will update with any clarification from the CBI.
Drop in mortgage lending in Q4 will be down to the closure of Bank of Scotland (Ireland) and the transfer of assets to the (UK based) balance sheet of BOS plc.
There has been a huge amount of deposits transferred from banks (and probably credit unions) to the PO savings schemes. The most recent figure I can find is from the NTMA 2009 annual report which shows a net inflow of €1.76 billion and I’d guess that the 2010 figure will be higher than that.
Most of this just reiterates points made by previous contributors.
(1) The reason for the jump is credit unions as indicated above. Credit Unions have about €13 billion on deposit from their members
(2) Although the numbers might not be as detailed as we would wish we can get some insight into the deposit performance of covered and non-covered banks in the Money, Credit and Banking Statistcis. See here.
(7) As stated above the reason for the drop in mortgage balances is because of the withdrawal of Bank of Scotland (Ireland). It is important to note that these figures relate to financial institutions operating in Ireland and do not give the full extent of deposits and loans of Irish households. The Central Bank’s own Household Sector Accounts estimate that Irish households have €185 billion of loans outstanding (though this does include self-employed business loans).