Quarterly Bulletin Q3 2013

More documents

Recommendations

Info

36 Financing Developments Quarterly Bulletin 03 / July 13 in the Irish Economy 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Chart 3: Interest Rates on Deposits with Agreed Maturity from Households and NFCs Per cent per annum Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov prevailing currently on savings products in comparison with previous years is another possible reason for the shift to more liquid assets. Jan Mar 2008 2009 2010 2011 2012 2013 Ireland (Outstanding Amounts) Euro Area (Outstanding Amounts) Ireland (New Business) Euro Area (New Business) Sources: Central Bank of Ireland and the ECB. The stabilisation in aggregate private-sector deposits has occurred even as the cost of attracting them has eased significantly for credit institutions in Ireland. Retail interest rates on outstanding household and NFC deposits with agreed maturity fell by 76 basis points to 2.63 per cent between April 2012 (the most recent high point) and April 2013 (Chart 3). While this rate remains higher than the euro area average rate (2.42 per cent), the spread between Irish and euro area rates for savings deposits has narrowed significantly. This spread, which has been falling consistently since end-2011, is expected to decline further. The rate being agreed on new business household and NFC deposits in Ireland, at 0.89 per cent, is now some 80 basis points lower than the euro area average. Meanwhile, retail interest rates on new business lending to households and NFCs have remained relatively stable in recent months, which has allowed for some improvement in net interest margins generated by credit institutions in Ireland. Developments on the assets side of credit institutions’ balance sheet are being driven by both the need to ‘right-size’ their business in a sustainable manner and the wider debt dynamics faced by the Irish non-financial private and public sectors given their own process of deleveraging. Transactions related to the liquidation of IBRC, including the settlement of the promissory note, have decreased the exposure of the resident banking system to the Irish government. At the same time, credit institutions’ holdings of Irish government debt has also declined marginally in recent months. Having increased by almost 40 per cent during 2012, holdings of Irish government bonds were 3.3 per cent lower on an annual basis at end-April 2013. Meanwhile, loans to the Irish private sector declined by 4.8 per cent over the year to end- April 2013, as deleveraging by the household and NFC sectors continued. Despite these reductions, the share of credit to the Irish private sector relative to the total assets of domestic market credit institutions has risen to 55 per cent, a level not consistently seen since 2003. This comes as retrenchment from foreign markets, particularly for Irish-owned credit institutions, has taken the majority of the impact of the adjustment process. Credit advanced to non-residents by the domestic market credit institutions has contracted by 21.6 per cent in the year to end-April 2013, with credit to the non-resident private sector falling by 22.1 per cent.
Financing Developments in the Irish Economy Quarterly Bulletin 03 / July 13 37 Box 1: The Changing Composition of the Irish Banking System 2003-2012 By Sarah Frost This Box provides an overview of the evolution of the banking system in Ireland over the period end-2003 to end-2012. The banking system in Ireland can be split into three main categories, namely Irish-owned retail banks, non-Irish owned retail banks and IFSC banks. Along with credit unions 2 , Irish-owned and non-Irish owned retail banks together make up the domestic market credit institutions, whose main business activity is to provide banking services to households and businesses in the Republic of Ireland. In contrast, IFSC credit institutions are resident in Ireland but their business is mainly conducted with counterparties outside the State. We examine the developments in each of these categories, highlighting their characteristics at the start of the domestic credit-fuelled boom, at the onset of the financial crisis, and at the most recent year-end as recovery and repair of the financial system continues. Box 1 Chart 1: Irish Resident Credit Institutions’ Total Assets 2003 Total Assets (€575 billion) 2008 Total Assets (€1,412 billion) 2012 Total Assets (€859 billion) Irish-owned IFSC Banks 54% Domestic 46% retail 35% Non-Irish owned retail 11% IFSC Banks Irish-owned retail Non-Irish owned retail IFSC Banks 43% Domestic 57% Irish-owned retail 44% Non-Irish owned retail 13% IFSC Banks Irish-owned retail Non-Irish owned retail IFSC Banks 38% Domestic 62% Irish-owned retail 51% Non-Irish owned retail 11% IFSC Banks Irish-owned retail Non-Irish owned retail Source: Money and Banking Statistics, Central Bank of Ireland. In 2003, at the onset of the period of credit-fuelled domestic demand, the total assets of the Irish banking sector amounted to €575 billion (408 per cent of GDP). At this time the IFSC banks accounted for the majority share of the Irish banking system in terms of balance sheet size. Over the years to 2008, the resident banking system almost tripled in size to €1,412 billion (789 per cent of GDP). This was primarily driven by Irish-owned retail banks, whose activities in the State grew by 209 per cent over the period, bringing their total share in the resident banking system to 44 per cent. While non-Irish owned retail institutions also increased in size from 2003 to 2008, by 193 per cent, their share in the total system only rose by 2 percentage points. This suggests that Irish-owned banks’ behaviour during this time was not solely in response to excessive competition in the domestic retail space from foreign competitors. The IFSC banks had also expanded from 2003 to 2008 but their rate of increase was outpaced by that of the domestic market institutions, and as a result the IFSC banks share of the resident banking system had decreased by 11 percentage points by end-2008. The IFSC banking group began to contract from its peak of €707 billion in mid-2008 as the international financial crisis of 2007-2009 had a relatively more direct impact on these banks than on the domestic retail banking system. 2 As of January 2009, credit unions have been classified as credit institutions in Central Bank statistics. Prior to this, they were classified as non-bank financial intermediaries. Credit unions are not included in the analysis presented here.
Page 1: JULY 13 Q3 Central Bank Quarterly B
Page 5 and 6: Contents Section 1 Forecast Summary
Page 7 and 8: Section 1 Quarterly Bulletin 03 / J
Page 9 and 10: 7 Comment Annual National Accounts
Page 11 and 12: 9 The Domestic Economy Overview n A
Page 13 and 14: The Domestic Economy Quarterly Bull
Page 33 and 34: 31 An Timpeallacht Gheilleagrach Le
Page 35 and 36: 33 Financing Developments in the Ir
Page 37: Financing Developments in the Irish
Page 41 and 42: Financing Developments in the Irish
Page 55 and 56: 53 Developments in the Internationa
Page 57 and 58: Developments in the International a
Page 73 and 74: 71 EU-IMF Financial Assistance Prog
Page 75 and 76: EU-IMF Financial Assistance Program
Page 77 and 78: EU-IMF Financial Assistance Program
Page 79 and 80: 77 Developments in EU Financial Ser
Page 81 and 82: Developments in EU Financial Servic
Page 83 and 84: Developments in EU Financial Servic
Page 85 and 86: Section 2 Quarterly Bulletin 03 / J
Page 87 and 88: Analysis of Recent Monetary Operati
Page 89 and 90:
Analysis of Recent Monetary Operati
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Section 3 Quarterly Bulletin 03 / J
Page 107 and 108:
Statistical Appendix Quarterly Bull
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
Page 163:
show all

Quarterly Bulletin Q3 2013

Create successful ePaper yourself

Delete template?

Save as template?