€3bn deposit outflow from banks

BANKS based here suffered a near €3 billion outflow in deposits in October, reversing two months of inflows, as the deepening eurozone debt crisis spooked some savers, Central Bank data showed.

Irish banks, including local units of foreign banks, had nearly €350bn in deposits from residents and non-residents at the end of October, compared with €352bn at the end of September.

The annual rate of deposit decline in Ireland ticked up to 11% in October from 10.5% the month before as insurers and pension funds upped their withdrawals.

Consumers, companies and pension funds have been withdrawing cash from Irish-based banks for the past year but the rate of decline in household deposits eased to 4.5% year-on-year in October after falling 4.7% in the previous month.

The rate of decline in deposits among pension funds, insurers and non-bank financial institutions increased to 25% year-on-year in October from 22.9% in September.

The Government hopes the latest recapitalisation of its banks, which was completed in July, will restore investor and customer confidence, reverse deposit outflows and reduce the sector’s reliance on loans from the European Central Bank (ECB).

Overall, banks based here had €100.9bn of outstanding loans with the ECB at the end of October, with €71.5bn held by banks servicing the local economy such as Bank of Ireland, AIB and Ulster Bank, up from €71.1bn a month ago.

After years of reckless lending, banks have sharply cut the supply of credit to consumers as they seek to maintain their capital bases. Household lending fell by €614 million after a net monthly decline of €183m in September.

Bloxham chief economist, Alan McQuaid said: “Although there are some elements of these latest banking figures which may please the Government, the underlying message from the data is still one of overall weakness and difficulties in the banking sector.

“The bottom line is that we are still a long way from where we want or need to be as regards credit demand or availability to get the domestic economy moving again.

“The reality is that until the banking sector crisis is fully resolved and things improve on the labour market front then the supply/demand for credit will remain subdued in our view, severely hampering the recovery prospects for the economy as a whole in the process.”