Flight of private sector deposits from State-supported Irish banks continues to slow in November 2011

In December 2011, the Department of Finance issued what it called an “information note on the reporting of deposit trends at Irish banks” where it claimed “customer deposits in the Irish Covered Banks have been stable since the middle of the year and in more recent months have shown modest growth in aggregate terms”. The note goes on to point out that the monthly publication of deposit and loan information should be treated with caution because the figures are (a) unconsolidated and (b) exclude deposits held by overseas subsidiaries of the covered banks eg in the UK.

It remains unclear why the Central Bank of Ireland (CBI) cannot produce clear statistics on deposits in Irish banks each month, particularly if there is a positive news story to be reported; deposits held by “overseas subsidiaries” eg Bank of Ireland’s substantial deposits held in conjunction with the UK’s Post Office are arguably not relevant to the health of the Irish economy.  And with an accountant’s hat on, “unconsolidated” doesn’t mean very much in the context of private sector deposits reported every month. So the Department might claim that “in more recent months [customer deposits] have shown modest growth in aggregate terms” but the figures from the CBI paint a different picture.

This morning, the CBI has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 30^th November 2011 and shows that during the month of November 2011, deposits by ordinary households and businesses continued to decline at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The €408m decline to €101.4bn in private sector deposits in November 2011 is larger than the €255m decline in October, but far less than the average decline of €1.3bn per month over the past year when a total of €15.6bn of private sector deposits “flew” from the covered banks. The decline of €408m compares with a decline of €7bn a year ago in November 2010 when the country entered an IMF programme. I think it’s fair to say that the flight of deposits is continuing to slow. Indeed, the decline in deposits may not have anything to do with confidence in Irish banks but may just reflect the economic reality of there being less spare cash to place on deposit.

Deposits overall in the covered banks fell for the first time in five months by €3.6bn to €262.7bn. The reduction is almost entirely due to a decline in deposits from non-European depositors.

The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits fell by €1.2bn in November compared to modest increases in September and October. Total deposits from all sources in all Irish banks fell €4.8bn in November, mostly as a result of depositors outsideEurope removing deposits. Could this be a reflection of doubts in the immediate future of the EuroZone and rumblings about EZ bank ratings downgrades?

Here is the full set of deposit statistics for the different categories of bank operating inIreland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank ofIreland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outsideEurope)

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UK residential property down 1.2% in December 2011

The Nationwide Building Society has this morning published its UK House Price data for December 2011. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £163,822 (compared with GBP £165,798 in November 2011 and GBP £162,764 at the end of November 2009 – 30^th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 11.9% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of November 2011 being GBP £163,822 (or €195,554 at GBP 1 = EUR 1.1937) is 16% above the €168,669 implied by applying the CSO November 2011 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q3, 2011 was worth €163,438, according to theUniversity ofUlster/Bank ofIreland survey (less according to Nationwide – see below).

With the latest release from Nationwide, UK house prices have risen by 0.6% since 30^th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 828 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 20.7% for NAMA to breakeven on a gross basis.

The Nationwide has also published its quarterly series for Q4,2011 this morning which analyses prices in greater detail. It shows that in the past year, London has performed best with a 5.4% increase in prices whilst Northern Ireland is at the bottom of the league with a 8.9% decline. This is reflected in the Q4, 2011 prices which also show Northern Ireland at the bottom of the league with a quarterly decline of 2.6% leaving average prices at GBP 113,614 (€135,621)

The outlook for property in the UK remains uncertain with more downside risk than upside. The UK has adopted Quantitative Easing – printing GBP 295bn of new money in its GBP 1.5tn economy – as a key tactic to inflate itself out of the 2007 financial crisis and its aftermath. Annual inflation in 2011 is likely to be 4.5-5.5% (to the end of November 2011, UK CPI prices for 11 months were up 3.8%), so the only region to see real growth in the past year was London. Chancellor of the Exchequer George Osborne delivered a sober Autumn Statement in November 2011, and although theUK economy will see positive growth it will be in the muted, 0.9% in 2011, 0.7% in 2012, 2.1% in 2013, 2.7% in 2014 and 3% in 2015 and 2016 (longer term projections always tend to be optimistically positive). Remember their deficit is similar toIreland’s though they will end up with debt:GDP at 78% in 2015 compared to our 115%+ (and our debt:GNP will be about 140%). Unemployment at 8%+ will remain high for the short term, there will be little upward pressure on wages and inflation will take another year to come down to the 2-3% target.

Regionally London will have the Olympics in 2012, but that is not likely to affect London prices generally (east London prices might tip up on the back of the prestige). Prime London is said to remain strong but has become less strong in the second half of 2012. There are moves afoot to ease planning laws, so as to allow more housing but these are mired in internecine party politics. Don’t expect a glut of new housing anytime soon.

So all in all, you might expect muted changes to house prices in the UK in 2012.London will probably perform best again, and there are likely to be small declines in some regions. Northern Ireland was the worst performer in 2012 but there appear to be signs that its 44% decline from peak is easing.

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