ECB loans to Irish banks down 14% last month

THE AMOUNT of money lent by the European Central Bank to Irish financial institutions fell by 14 per cent last month to its lowest level since July 2010.

Monthly figures published by the Irish Central Bank yesterday showed that Irish banks had borrowings of €92.6 billion from the ECB at the end of January, down from €107.2 billion the previous month. The data also shows that €45.45 billion of “other assets”, which mainly comprise emergency liquidity funding, was on loan to Irish banks on January 27th, up slightly from €44.1 billion the previous month.

While the fall in banks’ reliance on central funding may indicate an easing of funding conditions for Irish banks, Dublin-based fixed-income firm Glas Securities said the sharp drop was more likely to be driven by a transfer of funding from an IFSC bank to a foreign parent or bad-bank vehicle. “We believe that covered bank reliance on ECB funding has not dropped in this period,” it said yesterday.

The central bank data covers both domestic banks and foreign-owned institutions operating in Ireland. A breakdown of the figures will be provided by the Central Bank in the coming weeks.

Donal O’Mahony of Davy Stockbrokers said that while it was not impossible that the 14 per cent drop was due to a transfer from an Irish-based foreign bank, it could also reflect the fact that most banks declined to take up the ECB’s regular short-dated refinancing offered on January 25th as they are awaiting the ECB’s second three-year liquidity operation scheduled for the end of this month which will offer longer-term finance.

He said the drop could also indicate a fall in Irish banks’ funding requirements as they deleverage and sell off assets, as well as as a possible increase in deposits.

Ireland’s dependence on ECB funding was perceived as a key indicator of the state of the country’s banking system in the months preceding the signing of the IMF-EU bailout. In November 2010 it reached a peak when banks were in receipt of €136.4 billion in ECB funding. This has gradually been decreasing.

Emergency liquidity assistance from the Irish Central Bank increased last year, hitting a peak of €70 billion in February 2011. It now stands at €45.4 billion.