Saturday, December 1, 2012

1/12/2012: Much Hype on Little Signs: Private Sector Deposits in October

Much hoopla is doing rounds these days about the 'rise in October deposits' in irish banking system. Head of the Department of Finance has referenced the 'welcome news' in his most recent speech and the Central Bank has cheerfully noted as much in the release published last night. Alas, as usual, the reality is not as encouraging as the 'Green Jerseys' crowd might suggest it is.

Let's cut some fog of numbers here.

First, Domestic Group of banks:

  • Total Deposits in Domestic Group of banks (covering all banks registered to operate in Ireland) rose from €206,363mln in September to €208,633mln in October. In other words, deposits rose 1.1% m/m (reversing a -0.19% contraction m/m in September 2012).
  • However, total deposits in Domestic Group are down 16.6% y/y in October 2012, oops... volatility in m/m figures seems to be clouding the minds at the 'Green Jerseys' clubhouse. And worse:
  • More worrying: 3mo average deposits through October 2012 are down 7.9% on 3mo average deposits through July 2012, and are down 16.8% on 3mo average through October 2011. 
  • Likewise, 6mo average through October 2012 is down 10.0% on 6mo average through April 2012 and is down 15.4% on 6mo average through October 2011.
  • Some might say that these averages are down because of some exits of banking institutions from Ireland, but that is simply false, as data for Covered Banks (see below) shows an even more disastrous trend.
  • Now, October 2012 levels of total deposits from Irish Residents are down 16.6% on October 2011, down 31.2% on October 2010 and down 32.8% on October 2009. Only Borat would cheer these trends with a 'Good news' headline.
Much of the above data trends is driven by the Monetary & Financial Institutions deposits changes. Much, but not all. 
  • Government deposits with Domestic Banks rose 25.9% m/m in October having posted a 6.0% rise in September 2012. Year on year, Government deposits are up 44.8% in October 2012 and they were up 2.4% in September 2012. Virtually all trends on Government deposits are up.
  • In contrast, Private Sector deposits with Domestic banks grew only 1.16% m/m in October 2012 and 2.2% in September 2012. 
  • In longer term trends, Private Sector deposits didn't fare that well: 3mo average through October 2012 rose 0.06% on 3mo through July 2012, while it was up 0.73% y/y. 6mo average was up 1.2% in October 2012, compared to 6mo average through April 2012, but down 1.25% in y/y terms.
  • Now, for dysmal science analysis of the Private Sector deposits: in october 2012, Private Sector Deposits in Domestic Group of banks were up 2.2% on October 2011, down 13.0% on October 2010 and down 18.0% on October 2009.
  • Borat back, please.
Let's take a look at the levels of change in Domestic Group deposits:
  • Cheerful increase in total Irish residents' deposits in Domestic Group of banks amounted to €2,270mln in October compared to September 2012, with only €923mln of that - less than half - accumulating in Covered Banks. Looks like foreign banks are beating Irish zombies in the deposits gathering game.
  • There was a rise of €1,663 million in Private Sector deposits in the Domestic Group of banks in October, compared to September. Of this, only €574mln - roughly one third - landed in Irish banks, with 2/3rds going to foreign banks.
  • Borat would say that the above shows success in restructuring Irish banking system. More even-headed analysis suggests success in foreign banking system operating in Ireland.
Now, Covered Banks (aka Irish Banking Zombies):
  • Total Residents' deposits in Covered Banks were up €923 million in October 2012 (+0.59%) m/m, reversing a -0.01% decline in September. Y/y deposits are down 19.63% - worse performance than in September 2012 (-19.26%).
  • Let's put things into perspective: in a year to October 2012, Irish Residents' deposits in Covered Banks shrunk €38.5 billion. In the 'cheers inducing' month of October 2012 they rose €923mln. Simple math suggests that it will take us 48 months of these 'improvements' to get back to where Irish Residents' deposits were back in October 2011.
  • But there's more: Total Residents' deposits in Covered Banks in October 2012 were -19.63% below October 2011, -36.35% below October 2010, -37.64% lower than in October 2009. You get my point - Covered Banks (which were supposedly reformed, repaired, recaped per Department of Finance & CBofI, ages ago) are still performing woefully worse than foreign banks operating in Ireland.
  • Government deposits with Government-owned banks rose €695 million m/m in October (+27.2% m/m and +45.92% y/y), outstripping increases in private deposits of €574mln (+0.55% m/m and +3.3% y/y).
  • Private Sector Irish Residents' deposits with Covered Banks fell -0.75% on 3mo average basis through October 2012 compared to 3mo average through July 2012, although these are up 2.80% y/y. On another positive note, 6mo average for Irish Residents' Private Sector deposits with Covered Banks rose 1.8% on 6mo average through April 2012.
  • Nonetheless, Irish Residents' Private Sector deposits with Covered Banks in October 2012 were still down 15.8% on same period of 2010 and down 20.7% on same period 2009.
  • Switching back to more positive bit of news: Private Sector deposits with Domestic Banks were up €3.121bn in October 2012 y/y, and up €3.379bn for deposits with Covered Banks, which means that y/y Irish Covered Banks are generating stronger activity in attracting Private Sector Residents' deposits than foreign banks.
Here are some charts illustrating the above trends:

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