Borrowings of banks fall by 12%

IRISH banks’ borrowings from the European Central Bank and the Central Bank of Ireland fell by 12% in April, primarily due to the country’s debt agency temporarily placing deposits with some lenders.

The banks are reliant on central bank loans to fund their day-to-day operations due to tens of billions of euro in deposit outflows and their exclusion from interbank lending markets.

The banks’ ECB borrowings fell to an eight-month low of €106 billion as of April 29, compared to €114.5bn on March 25.

The Central Bank loaned banks based in the country €54bn in special funding, down from the €66.8bn lent the previous month.

However, the Central Bank said the temporary placing of deposits by the National Treasury Management Agency (NTMA) was the primary factor for the reduction in its funding.

The NTMA, which manages the state’s finances and has received €17.8bn from the EU and IMF, said it had deposited funds earmarked to recapitalise the banks with the lenders.

Under the bailout terms, Dublin has until the end of July to recapitalise its banks to the tune of €24bn.

“The deposits in the aggregate amount of €19bn are being lodged with the banks that were subject to the 31 March 2011 stress tests,” the NTMA stated.

“On or before 31 July 2011 the deposits will be returned to the state to provide the funds necessary for the 31 July recapitalisations,” the NTMA added.

The Government hopes that pumping €24bn of fresh capital into its four remaining lenders and demanding they shrink their balance sheets by €73bn by the end of 2013 will cut their dependence on the ECB.

Dublin hopes some €5bn can be raised by asset sales and imposing losses on junior bondholders.

AIB yesterday formally launched an offer to buy back €2.6bn of subordinated debt at a discount of up to 90%.

In response to this “distressed exchange”, ratings agency Standard & Poor’s downgraded AIB’s lower Tier 2 debt to D, its lowest rating.

Ireland’s six domestic banks have lost over €90bn in mainly corporate deposits since the end of 2008, when the banking crisis first gripped.

“I wouldn’t say [the drop in April] is attributable to a massive inflow of deposits. There are some technical reasons and also the fact that the NTMA has pledged some funding which has obviously helped as well,” said Glas Securities analyst Michael Cummins.