Poor old Professor Patrick Honohan, he wrote the introduction and accompanying letter for the Central Bank of Ireland’s (CBI) 2011 annual report in April 2012. Both were published this morning and the cautiously upbeat tone looks out of place with a EuroZone that once again appears to be teetering as Greece looks set for default/ejection from the euro or even EU, the horror that lies beneath Spanish banks is slowly coming to the surface and indeed Italian banks have suffered their own downgrades recently. Meantime inFrance, there is confusion amidst the rhetoric and solid commitment to seek different solutions to a crisis that has now dragged on for over four years, and we still appear to be lurching from one apocalyptical crisis to another, sometimes spaced just days or weeks apart.
And yet regardless of what is happening elsewhere in Europe, the CBI must deal with matters under its own control and hope that the dice land fortuitously elsewhere. The CBI has been to the fore of a large number of initiatives in the last year to strengthen our banks, both financially and through governance, and to deal with legacy debt and the credit drought. It has had very limited success, but that may have more to with the banks themselves and Government. The stress tests in March 2011 were generally well received in the sense that our bond yields and deposits improved in the immediate aftermath, but then Portugal succumbed to a bailout and the whole edifice was rocked again. There has been deposits stability since the second half of 2011 and reliance on funding from central banks has declined by a quarter, though our banks are by no means able to stand on their own feet yet.
Last week Deutsche Bank opined that Irish banks would need a further €4bn of capital to absorb further losses, but that is notable as one of the few negative suggestions after the 2011 recapitalisation.
Lending by our banks however has declined. In the case of mortgage lending, we saw last week that in respect of Q1, 2012 lending has fallen off a cliff and is now practically moribund. Consumer and commercial lending has also declined though it is difficult to tease asunder the reasons, lack of demand or supply. The Credit Review Office is having some business loan decisions reversed but the evidence is that there are few decisions which are challenged.
We still await meaningful action on the mortgage arrears crisis but that would seem to be in the purlieu of Government rather than the CBI, though it was noteworthy the CBI expressed disquiet at any prospect of the imminent Personal Insolvency Bill leading to further bank losses, particularly on mortgages.
As with last year, the CBI might say it could have been worse but the fact remains that competition is dwindling – in the past year with the merger of EBS with AIB, and the decision to wind down INBS and Anglo. Credit supply is considered weak. And judging by its share price, Bank of Ireland is by no means out of the woods yet.
The financial highlights – profit at the CBI was €1.2bn (up from €0.8bn in 2010), dividend to the Irish Exchequer was €958m (up from €671m), staff numbers were 1,372 (up from 1,226), costs were €184m (up from €131m in 2010, with staff costs up €17m to €104m in 2011). The main reason for the increase in profit was the increase in lending to Irish banks – and I would guess IBRC accounted for most of the interest – both by the CBI directly and by the ECB which remits a portion of its income to the CBI.
Governor Honohan who had already taken a pay-cut from €369,078 to €276,324 gifted €41,740 of his salary to the State in 2011 which meant his gross salary dropped to €234,584. He will receive a gross of €213,000 in 2012 after announcing he will gift €63,324 to the State during this year. There will be some who will carp at these contributions, but for a governor of a central bank in a country with a far-from-healthy banking system, these are huge sacrifices and should be acknowledged as such. Mathew Elderfield, the deputy governor gets €340,000 per annum. Is Governor Honohan’s job any less demanding or important than the €866,000-per-annum chief executive of IBRC, Mike Aynsley?
NAMA Wine Lake 
The lauding of the Central Bank profit is laughable. RTE particularly lead this in their radio headlines as if the CBI was making cars or widgets. This is nonsense.
Central Bank profits are an economic illusion. Particularly in the present situation they are simply a function of what interest rate they charge the banks we own. It’s a financial merry go round. The central bank could make billion of billions out of our still insolvent banks by upping the interest rate.
Of more importance is Governor Patrick Honohan’s statement over the weekend:
“A departure by Greece would be “a rather destabilising kind of event” for the rest of the euro area and all sides are working to try to avoid it, Mr Honohan said, adding: “It is not necessarily fatal but it is not attractive”.”
“It is not necessarily fatal but it is not attractive” The honest economists have said nobody has a clue what will happen if Greece exits the Euro as this kind of event has never happened before.
Contrary to what the Governor holds it could be very fatal indeed!
But of what benefit is it to Ireland having our Central Banker at some conference in Tallinn waffling about something as devastating as this.
The Governor and Mr. Noonan would be better employed minding our shop and not looking down our noses at the Greeks.
We are lucky to have the Greeks they make us look good!
But please no more dancing on Greek graves, a noble people deserve at least a small modicum of respect.
@Paddy19, Laura Noonan in today’s Irish Independent quotes Governor Honohan yesterday in the following terms
“”I don’t think we should take any credit in this building for the large profits,” Mr Honohan said. “It’s an ill wind that blows nobody some good and the Central Bank actually benefits from some of the (crisis measures).”
http://www.independent.ie/business/irish/central-bank-not-due-credit-for-any-profits-says-its-chief-3116117.html
The focus of the annual report is not on profit, or indeed financial results at all, but of restoring credibility to Irish financial institutions, on which the CBI has had mixed results in the past year.
@ NWL,
Well done to you for crediting Mr Honohan for the gifts he as made to the state via his salary forgone etc.
I would have thought considering the responsibility which is on his shoulders, having to watch every word uttered and thousands of other things which Mr Honohan has to be mindful of that his salary is very very low.
@Sporthog, considering he is making 40% less than his deputy, Matthew Elderfield, I think it is an heroic sacrifice but people who know him say it is typical of the man and his sensitivity to the economic state of the country. I agree with you it very low for a central bank governor of a small but problematic banking jurisdiction but when the country is insolvent, sacrifice is expected. It’s worth saying that the reduction in salary was offered without being asked.
If only we could get our ministers to show the same sensitivity in their salaries and expenses
http://debates.oireachtas.ie/dail/2012/05/17/00154.asp
Let’s print a little bit more confetti, it would be even more profitable in CC (confetti currency).
Mr Honohan should not have been obliged, forced or impelled to make any ‘salary sacrifice’ however well intentioned.
Maximum State, semi-State, State owned bank, State paid consultants should have been capped at an absolute max of €200,000 at most for the past three years.
This should still be done under emergency legislation.
Those that did not like that regime should be told:
‘Don’t let the door hit you on the as* on the way out’.
PS: for the record, will Mr Honohan salary sacrifice apply to his pensionable salary in respect of his Governorship.
In the main, the providers of credit to the Irish commercial market will no longer be our banks. They are destined to be “bit players” in the economy. Funding to Ireland will mainly come from US capital providers – hedge funds, vulture funds etc. This is the new reality. And their money is not cheap. That means that the assets that it purchases will fall further in value to allow for the increased returns required.