Saturday, April 30, 2011

As Predicted, Without Transparency No Trust in Irish Banks

As predicted previously on this blog, without disclosure of the Irish banks current asset and liability level data, investor trust in these banks will not be restored.

The Irish Times reported that March was another big month for the withdrawal of deposits from the Irish banking system.  This occurred despite all the publicity surrounding the release of the latest round of stress tests augmented by BlackRock's analysis of the loan books of the Irish banks.

One of the interesting findings in the article is that after months of foreign investors leading the rush out of the Irish banks, Irish companies are now leading the way in withdrawing deposits.

This is not surprising.  Since retail investors are mostly covered by the deposit insurance, they are not sensitive to bank solvency.

On the other hand, companies that carry deposits in excess of the insurance limit are.  The withdrawals reflect their decision to minimize their exposure to potential losses in the banking system.

The individuals in charge of managing investments for companies are sophisticated enough to know that if all the useful, relevant information is not disclosed in an appropriate timely manner and there is doubt about a bank's solvency, then do not keep more money in a bank than is covered by a government deposit guarantee.
BANKS IN Ireland continued to record a fall in deposits in March, according to figures published by the Central Bank yesterday, while bank lending also declined. 
By the widest measure, there was an outflow of money on deposit of €16.7 billion last month when compared to February (see chart). The total deposit base stood at €630.7 billion last month. 
That is a significant decline on the middle of last year. A loss of international investor faith in Ireland from September has resulted in the large withdrawals. 
Cumulatively in the seven months from September of last year to March of this year, almost 30 per cent of deposits have been withdrawn. 
The figures are broken down into three residency groupings – Ireland, the euro area and the rest of the world. 
Residents in the rest of the world category have pulled deposits from banks in Ireland at the fastest rate over the past half year, with Irish residents making the smallest withdrawals. 
However, in March the trend reversed. Of the total €16.7 billion withdrawn, Irish residents accounted for almost €9 billion of the overall fall in money lodged in banks here. 
The figures for Irish resident deposits are disaggregated further. Irish banks’ deposits with their rivals – a normal practice – fell by more than €12 billion month-on-month in March. 
The effect of this on the total deposit base was partly offset by a €5 billion increase in the amount placed on deposit by the Government. 
Retail depositors’ faith in the banking system has been least affected by the banking crisis over the past half year. This was also the case in March. 
Household deposits fell by just €438 million, the smallest decline since December. In total, they stood at just below €93 billion in March, down just €4 billion since the middle of last year. 
Irish companies, in contrast to households, accelerated the pace of their withdrawals in March.  Collectively, they pulled almost €1 billion from accounts in March. Their total deposits stood at just over €32 billion. 

No comments: