Figures released by the Central Bank of Ireland (CBI) today show that in the month of August 2012, the reliance by Irish banks on central bank funding fell again in what has been a downward trend since December 2011. 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 €1.9bn in August 2012 from €121.6bn in July to €119.7bn in August. Lending directly from the ECB fell by €0.9bn in the month of August 2012, from €80.0bn in July 2012 to €79.1bn. Lending from the CBI to Irish banks, which is mostly known as “Emergency Liquidity Assistance” or ELA declined by €1.0bn, from €41.6bn to €40.6bn.
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 has been positive since the start of 2011 This is indeed 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 €79.1bn. 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. Last month, the Irish Department of Finance said that Irish banks now account for less than 5% of all ECB lending to EuroZone banks.
We will get deposit information on Irish banks for August 2012, at the end of September. Deposit analysis for Irish banks for July 2012 is available here.