Deposits in Irish banks rise for first time in a year

THE AMOUNT of cash on deposit in banks located in Ireland rose in August, which was the first time in a year a monthly increase in deposits was recorded.

Along with much reduced yields on Irish Government bonds, it provides further evidence of a marked change of international sentiment towards Ireland with regards to its financial stability and economic growth prospects.

The figures, published yesterday by the Central Bank, show the total deposit base of all banks located in Ireland rose by just over €2 billion between July and August to stand at €579 billion.

In August 2010, just before a de facto run on the banking system began, deposits were more than 50 per cent higher, at €893 billion.

In September 2010, money began to drain from the banking system (see chart). The €67 billion withdrawn from banks in October last year threatened the system’s stability and was a key factor in triggering Ireland’s EU-International Monetary Fund bailout.

The August rise in deposits, though small relative to the overall size of the deposit base, was more notable in that it took place in a month of panic in financial markets. This panic was characterised in part by a flight of capital from jurisdictions considered to be less stable. Since 2008, such bouts of panic have hit the Irish economy badly, given its perceived fragility and, hence, riskiness.

That the amount on deposit in banks located in Ireland rose also suggests international perceptions of the Irish economy have decoupled from those of the other two euro areas countries being bailed out – Greece and Portugal.

A breakdown of the figures show Ireland and other euro area residents accounted for the rise in deposits in August. Non-euro area residents continued to withdraw cash. A further breakdown of Irish residents’ deposits shows households reduced the amount of cash they held in banks in August by €556 million. The total stood at just over €91 billion. Irish non-financial companies increased their deposits by €339 million in the period to stand at €31 billion.

The figures released by the Central Bank yesterday include data on bank lending. Total outstanding lending to non-financial business fell in August by €755 million. This exceeded the cumulative increases in the previous three months. As a result, total bank loans to business reached a new recessionary low of €88.5 billion.

Loans to households including mortgages declined in August by just under €500 million, to bring total loans outstanding to €128.2 billion. This is almost one fifth lower than in May 2008, when bank lending to households peaked.