Account holders withdraw €23bn from banks this year

MORE than €23.5 billion of deposits have been withdrawn from the three major Irish banks since the start of the year. AIB says it has seen outflows of €13bn in deposits due to withdrawals by nervous corporate and business customers who fear for the Irish bank system.

In a trading update yesterday the bank said lower institutional and corporate balances were primarily the cause of the decline in its deposit base of 17% as international sentiment towards the banks and Ireland got increasingly negative. The bank’s loan-to-deposit ratio of 159% at September 30 is up from 151% at the end of June. Irish lenders are relying on ECB funding as bondholders charge excessive interest rates. AIB is depending on the ECB and other monetary authorities for about €27bn of its funding, the bank said.

AIB said it has increased the size of its planned capital raising to €6.6bn from €5.4bn, an exercise likely to leave the state owning at least 92% of the bank.

The loss of faith in Irish banks was further highlighted recently as Bank of Ireland confirmed it suffered €10bn in similar withdrawals prior to the end of September 2010 as big investors feared the guarantee on the banks might not be extended.

Irish Life & Permanent experienced an outflow of €600m from its deposit base a spokesman confirmed yesterday, which was 1% of its overall deposit base.

IMF, ECB and EU officials are in Dublin to finalise the bailout triggered by the banking collapse. The state of the banks’ balance sheets will be subject to very serious scrutiny by IMF and other officials who intend to have a bailout deal prepared in the next week or 10 days.

AIB said that talks between the Government, EU, IMF and others were likely to affect the banking sector. Profits in all of its businesses — excluding loan losses — were lower compared with last year, it said.

Lower business volumes and the higher costs of the Government guarantee scheme have added to the lower returns, it said.

Mortgages in arrears also continued to rise in the three months to the end of September, though not as quickly as in the second quarter. At this point 2.6% of its owner-occupier mortgages are in arrears for more than 90 days compared with 2.1% at the end of June.

It said the number of loans in danger of not being repaid rose again in the third quarter. An added factor in that growing figure is the €4.4bn of loans that will not now be transferred to NAMA, it said.