Saturday, December 1, 2012

1/12/2012: Irish banking Reforms: are things getting better?

In the previous post, I discussed changes in irish banking system systemic stability in 2012 (January-November). But here's a longer range view - from September 2010 on through November 2012.

Now, keep in mind: since September 2010, Irish banks had

  1. Massive recaps (2011-2012)
  2. Full reform and deleveraging programmes, approved by the EU and Irish authorities
  3. Rounds of increases in charges on customers to beef their own interest margins
  4. Vast subsidies from the ECB and CBofI
  5. Subsidies from the Government via deposits (see here)
  6. According to the Government, BofI (largest bank) has completed its deleveraging programme, while AIB (second largest bank) is ahead of target
  7. Massive sales of riskiest assets to Nama that crystalized losses and led to recaps, which are now completed
  8. According to the Government have bee operating in more benign environment of property prices stabilization
  9. Benefited from a 88% rally in Government bonds which they stuffed onto their balancesheet over 2010-present like there is no tomorrow
and so on. In other words, there are tomes and tomes of Government sponsored propaganda to suggest that things are going honky-dory in the banking sector in Ireland. Here's what Head of the Department of Finance had to say this week about the banking sector 'progress' (emphasis is mine):

"With PCAR capital investments and the Bank of Ireland sale, confidence started to return to the banking sector. [this refers to 2011]"

"In 2012 we have witnessed further tangible signs of stability. …Even though non-performing loans continue to grow; here again there are tentative signs that in the mortgage arrears area the growth in new arrears has been arrested. 

The banks still have a lot of work to do to roll out sustainable mortgage solutions, but this process is underway.

Importantly, confidence is returning to our banking system following its recapitalisation.  Deposits across the Irish system are up 2.5% with stronger growth recorded by AIB, BOI and PTSB (which are up 5.3%).

We are in a situation now where the domestic banking system is getting stronger, albeit from a very weak starting point.
  • The large scale balance sheet restructuring has been completed;
  • BOI have completed the disposal of non-core portfolios
  • AIB have substantially completed their disposals. 
  • The funding gap has been significantly reduced and the drawing on Eurosystem funding by our government supported going-concern banks continues to decline, and is now less than €60 billion (excluding IBRC).
  • Importantly, as I said earlier deposits are growing and the banks are back in the funding markets."
So, in other words, we should expect Ireland's banking system to have performed well in progressing since 2009-2010 lows?

Here's the chart:

In reality, courtesy of Euromoney surveys, we know that Irish banking system stability has deteriorated, not improved, between September 2010 and November 2012, and this deterioration was the second largest amongst 37 European countries.

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