Irish-based banks’ reliance on ECB in decline

Irish-based banks’ reliance on emergency funding fell to the lowest level in almost 18 months at the end of January after borrowings from the European Central Bank shrank by 14% on the previous month, data showed yesterday.

Irish banks, at the root of a financial crisis which led to an €85bn EU/IMF bailout in November 2010, are reliant on central bank loans to fund their day-to-day operations after losing tens of billions of euro in deposits and being largely excluded from wholesale lending markets.

The bulk of the loans from the ECB are to domestic Irish banks such as Bank of Ireland and AIB, but the overall figure also includes foreign subsidiaries based in Ireland.

Analysts said it was more likely the sharp fall was down to foreign banks based in Dublin’s International Financial Services Centre than one of its domestic lenders.

“We would suggest that the sharp drop is more likely to be driven by a transfer of funding from an IFSC bank to a foreign parent or bad bank vehicle over the course of January,” Dublin-based Glas Securities wrote in a note. “We remain sceptical as to whether the recent drop should be perceived in a positive manner for the Irish covered banks.”

Overall borrowings by the banks from the ECB and Ireland’s central bank stood at €138.1bn as of Jan 27, down from €151.4bn at the end of December and from a high of €187bn in February 2011.

Banks had €92.6bn in outstanding loans from the ECB, lower from a nine-month high of €107.2bn last month following an injection of ultra-cheap three-year loans by the eurozone’s central bank into the European banking system.