Despite paying high rates to attract deposits, depositors still not flocking to Irish banks

The Central Bank of Ireland released the latest report on bank deposits.

The report shows that despite paying interest rates that are so high to attract deposits that the banks cannot profitably reinvest the deposits (see here), depositors are still not flocking to Irish banks.

Instead, they are putting their money into foreign owned banks with branches in Ireland.

As reported in an article in the Irish Times,

Last month an increase of almost €11 billion in deposits was recorded on the previous month.

The figures, published yesterday by the Central Bank, show that the total deposit base of all banks located in Ireland rose to €590 billion in September. 

This was the second consecutive month in which deposits grew. It follows a protracted period of precipitous decline. 

In September 2010 a massive outflow of cash from the banking system began. Between August 2010, when the deposit base stood at €893 billion, and July of this year, the banking system lost one-third of its total deposits. 

The loss of deposits forced banks to replace this cash with loans from the lender of last resort – the European Central Bank and the Central Bank. The increased dependence on emergency, short-term funding from central banks was the main factor that propelled the State to accept a bailout in November last year. 

Almost all of September’s increase was accounted for by non-Irish residents placing more money on deposit in Ireland-based banks. 

The figures suggest that most of the increase in non-resident deposits went to offshore banks operating in the IFSC. These banks do not service the domestic economy. 

Aggregate deposits in the 20-odd institutions which do service the domestic economy rose by €3 billion on the month in September, to stand at €352 billion. 

Among these institutions are the five banks covered by the State’s liability guarantee, which includes deposits. They are: AIB, Bank of Ireland, EBS, Irish Life and Permanent, and the Irish Bank Resolution Corporation. 

These five institutions also registered an increase in deposits in September, to €265 billion, up €2 billion on the month.