13/12/19: World Bank and WEF reports highlight relatively poor competitiveness rankings for Ireland

The latest World Bank "Doing Business" report rankings and the WEF's "Global Competitiveness Report" rankings show Ireland in a mid-tier 1 position (24th ranked in both tables) in terms of competitiveness - hardly an enviable position.

Ireland's position marks a deterioration from 23rd rank in WEF table, driven by relatively poor performance in ICT adoption (hmmm... Silicon Docks economy is ranked 49th in the World), macroeconomic stability (ranked 34th), product markets competitiveness (35th), and financial system (42nd).

Full WEF report here: http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf and full WB report here: https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf WB country profile for Ireland: https://www.doingbusiness.org/content/dam/doingBusiness/country/i/ireland/IRL.pdf.

A summary chart for Ireland from WB report:

Which, again shows poor performance in the area of credit supply, as well as trading across the border (correlated to the effective market size),  but also in access to electricity, registering property, dealing with construction permits, and enforcing contracts.

10/12/19: Irish Banks: Part 2

Continuing with the coverage of the Irish banks, in the second article for The Currency, available here: https://www.thecurrency.news/articles/4810/a-catalyst-for-underperformance-how-systemic-risk-and-strategic-failures-are-eroding-the-performance-of-the-irish-banks, I cover the assets side of the banks' balancesheets.

The article argues that "The banks are failing to provide sufficient support for the demand for investment funding, and are effectively removed from financing corporate investment. In this case, what does not make sense to investors does not make sense to society at large." In other words, strategic errors that have been forced onto the banks by deleveraging post-crisis have resulted in the Irish banks becoming a de facto peripheral play within the Euro area financial system, making them unattractive - from growth potential - to international markets.

The key conclusions are: "From investors’ perspective, neither of these parts of the Irish lenders’ story makes much sense as a long term investment proposition. From the Irish economy’s point of view, the banks are failing to provide sufficient support for the demand for investment funding, and are effectively removed from financing corporate investment. In this case, what doesn’t make sense to investors doesn’t make sense to the society at large."

10/12/19: Irish Banks: Part 1

Returning back to the blog after a break, some updates on recent published work.

In the first article on Irish banking for The Currency, titled "Culture wars and poor financial performance: examining Ireland’s dysfunctional, beleaguered banking system", I argued that "The financial performance of the Irish banks has been abysmal. Not for the lack of profit margins, but due to strategic decisions to withdraw from lending in the potential growth segments of the domestic and European economies." The article shows the funding side of the Irish banks and the explicit subsidy they receive from the ECB through monetary easing policies - a subsidy not passed to the end credit users.

In simple terms, high profit margins are underpinned - in Irish banks case - by low cost of funding.

Conclusions: "The implications of the lower cost of banks equity, interbank loans, as well as deposits for the Irish banking sector are clear cut: since the start of the economic recovery, Irish banks have enjoyed an effectively free ride through the funding markets courtesy of the ECB and the blind eye of the Irish consumer protection regulators. Yet, despite sky-high profit margins extracted by the banks from the households and businesses, the Irish banking sector remains the weakest link in the entire Eurozone’s financial services sector, save for Greece and Cyprus. If the funding side of the equation is not the culprit for this woeful record of recovery, the other two sides of the banking business, namely assets and regulatory costs, must be."

Read the full article here: https://www.thecurrency.news/articles/3833/culture-wars-and-poor-financial-performance-just-what-is-going-on-within-irelands-beleaguered-banks. 

3/12/15: Heard of Number26, yet?..

An interesting 'break-in' into Irish banking market via Number26 which uses:

• Fintech platform; and
• German license

to break the Central Bank of Ireland-led freeze on new entrants into the banking market here.

Details are here: http://techcrunch.com/2015/12/02/number26-launches-its-bank-of-the-future-in-6-new-countries/. Surprisingly low margin operation based on fees from transactions, rather than on direct customer charges. Presumably, accounts are insured by German system and are free from the Irish Government indirect tax extraction schemes, such as card duties etc... One, of course, will have to be compliant on Irish DIRT.

Of course, Fintech offers plenty of disruption potential in the sector that is inhabited by technology dinosaurs. Still, for all its promise, Fintech is yet to:

1. Achieve a significant breakthrough into traditional banking and insurance services (beyond aggregators and price optimising platforms) and
2. Deliver a viable (financially) margins model.

These two points mean that to achieve scale, Fintech offers today need deep pockets and customer bases of more traditional services providers, as I describe during this discussion: http://trueeconomics.blogspot.ie/2015/10/161015-financegoogle-2015.html.

27/4/2013: Sunday Times : March 31, 2014

The first of three consecutive posts to update on my recent articles in press.

This is an unedited version of my Sunday Times article from March 31, 2013.

What a difference a week, let alone nine months, make. 

Nine months ago, on June 29th, 2012, the eurozone leaders pledged "to break the links between the banks and the sovereign" prompting the Irish Government to call the results of the euro summit 'seismic' and ‘game-changing’. 

Fast-forward nine months. The number of mortgages in arrears in Irish banks rose at an annualised rate of 25%, the amounts of arrears have been growing at 65%. The number of all mortgages either in arrears, or temporarily restructured and not in arrears, or in repossessions is up 23% per annum. 

Deposits held in Irish ‘covered’ banks have fallen 13.9% between June 2012 and January 2013. In three months through January 2013 average levels of Irish residents' private sector deposits was down 2.34% on three months through June 2012, clocking annualised rate of decline of 4%. Over the same period of time, loans to Irish private sector fell 1.54% (annualised drop of 2.7%).

Smoothing out some of the monthly volatility, average ratio of private sector loans to deposits in the repaired Irish banking system rose from 145.8% in April-June 2012 to 147.0% in three months through January 2013.

Put simply, in the nine months since June 29th last year, the urgency of implementing the eurozone leaders' 'seismic' decisions on direct recapitalization of the banks and on examining Irish financial sector programme performance has been rising. 

Yet, this week, in the wake of yet another crisis this time decimating the economy of Cyprus, a number of EU officials have clearly stated that the euro area main mechanism for funding any future bailouts - the European Stability Mechanism fund - will not be used for direct and/or retrospective recapitalization of the banks. The willingness to act is still wanting in Europe.

First, chief of the euro area finance ministers group, Jeroen Djisselbloem, opined  that the ESM should never be used for direct capital supports to failing banks. Mr Djisselbloem went on to add that Cypriot deal, imposing forced bail-in of depositors and bondholders, is the template for future banks restructuring programmes. This pretty much rules out use of ESM to retroactively recapitalize Iriosh banks and take the burden of our past banks’ supports measures off the shoulders of the Irish taxpayers.

On foot of Mr Djisselbloem's comments, the EU Commission stated that it too hopes that direct recapitalisation of the banks via ESM will be avoided. In addition, the EU Internal Markets Commissioner Michel Barnier, while denying Mr Djisselbloem's claim that Cypriot 'deal' will serve as a future template for dealing with the banking crises, said that "Under the current legislation for bank resolution . . . it is not excluded that deposits over €100,000 could be instruments eligible for bail-in". Finnish Prime Minister Jyrki Katainen weighed in with his own assertion that the ESM should not be used to deal with the banking crises, especially in the case of legacy banks debts assumed. Klaus Regling, the head of the ESM, made a realistic assessment of the viability of the June 29, 2012 promises by stating that using ESM to directly recapitlise troubled banks will be politically impossible to achieve.  German officials defined their position in forthcoming talks on ESM future as being consistent with excluding legacy banks debts from ESM scope.

All of this must have been a shocker to the Irish Government that presided over the Cypriot bailout deal structuring which has shut the door on our hopes for Europe to come through on June 2012 commitments. After last weekend, uniqueness of Ireland is surpassed by the uniqueness of Greece where sovereign bonds were thrown into the fire and Cyprus where depositors and bondholders were savaged and not a single cent of Troika money was allocated to support the banks recapitalisations. 

The slavish conformity to the EU diktat that prompted the Irish Government to support disastrous application of the Troika programmes in Greece and Cyprus is now bearing its bitter fruit.

Which means that three years into what is termed by the Troika to be a 'successful adjustment programme', Ireland is now facing an old question: absent legacy banks debts restructuring, can we sustain the current fiscal path to debt stabilisation and avoid sovereign insolvency down the road?

Let’s look at the banking sector side of the problem.

Latest reports from the Irish banks show lower losses for 2012 compared to 2011, prompting many analysts and the Government to issue upbeat statements about the allegedly abating banking crisis. Such claims betray short foresight of our bankers and policymakers. Even according to the Central Bank stress tests from 2011, Irish banks are not expected to face the bulk of mortgages-related losses until 2015-2018. Latest data from CSO clearly shows that residential property prices across the nation were down for three months in a row through February. Prices have now fallen almost 23% since the original PCAR assessments were made. Even at the current levels, prices are still supported to the upside by the banks' inability to foreclose on defaulting mortgagees. Meanwhile, there are EUR45.3 billion worth of mortgages that are either in repossessions, in arrears or restructured and performing for now. Taken together, these facts mean that at current rates of decline in property values from PCAR valuations, we are already at the top of the envelope when it comes to banks ability to cover  potential mortgages losses. Add to this the effect of increasing supply of distressed properties into the market and it is hard to see how current prices can remain flat or rise through 2014-2015. 

All of the above suggests that before the first half of 2014 runs its course we are likely to see renewed concerns about banks capital levels starting to trickle into the media. Thereafter, the natural question will be who can shoulder any additional losses, given the entire Euro area banking system is moving toward higher capital ratios and quality overall. The answer to that is, of course, either the ESM or the Irish State.  The former is being ruled out by the euro area core member states. The latter is already nearly insolvent as is.

The headwinds to Irish debt sustainability argument do not end with the mortgages saga. 

Take a look at the economic growth dynamics. Back at the end of 2010, when Troika structured Irish ‘bailout’, our debt sustainability depended on the 2011-2015 forecast average annual growth at 2.68% for GDP.  By Budget 2013 time, these expectations were scaled back to 1.76%, yet the Troika continued to claim that our Government debt is sustainable. To attain medium-term sustainability, defined as declining debt/GDP ratios, between 2013 and 2017, IMF estimates that to stay the course Ireland will require average nominal GDP growth of 3.9% annually. To satisfy IMF sustainability assumptions, Irish economy will have to grow at 4.5% on average in 2016-2017 to compensate for slower rates of growth forecast in 2013-2015. So far, in 2011-2012 recovery we managed to achieve average growth rate in nominal GDP of just under 2.25%  - not even close to the average rates assumed by the IMF.

And the real challenge will come in 2015-2017 when we are likely to face sharp increases in mortgages-related losses. In other words, growth is expected to skyrocket just as banks and households will engage in massive mortgages defaults management exercise. 

There are additional headwinds in the workings, relating to the shifting composition of our GDP in recent years. Between 2007 and 2012, ratio of services in our total exports rose from 44.8% to 51.2%, while trade balance in services went from EUR2.75bn deficit to EUR3.1bn surplus. Trade in services is both more imports-intensive (with each EUR1 in services imports associated with EUR1.03 of services exports, as opposed to EUR1 in goods imports associated with EUR1.73 in exports) and has lower impact on our real economy. Irish tax system permits more aggressive, near-zero taxation of services trade against higher effective taxation for goods trade. This implies that while services-exporting MNCs book vastly more revenue into Ireland, most of the money flows through our economy without having any tangible relationship to either employment here or value added or any other real economic activity. In recent years, a significant share of our already anemic growth came from activities that are basically-speaking pure accounting trick with no bearing on our economy’s capacity to sustain public debt levels we have. If this trend were to continue into 2017, we can see some 5-7 percent of our GDP shifting to services-related tax arbitrage activities. 

Which, of course, would mean that the ‘sustainability’ levels of nominal growth mentioned above must be much higher in years to come to deliver real effect on our government debt mountain.

Take these headwinds together and there is a reasonable chance that Ireland will find itself at the point of yet another fiscal crisis with reigniting underlying banking and economic crises. Far from certainty, this high-impact possibility warrants some serious consideration in the halls of power. Maybe, continuing to sit on our hands and wait until the euro area acts upon its past promises is not good enough? Is it time we start building a coalition of the states willing to tackle the Northern Core States’ diktat over the ESM and banks rescue policies?

Box-out: 

Following the High Court judgment in the case involving rent review for Bewley’s Café on Dublin’s once swanky now increasingly dilapidated Grafton Street, one of the premier commercial real estate brokerages issued a note to its clients touching upon the expected or potential fallout from the case. The note mentions the stress the case might be causing many landlords sitting on ‘upward only rent review’ contracts and goes on to decry the possibility that with the Court’s decision in some cases rents might now revert to open market valuations. One does not need a better proof than this that Irish domestic sectors are nowhere near regaining any serious competitiveness. Instead of embracing self-correcting supply-demand reflecting market pricing, Irish domestic enterprises still seek protection and circumvention of the market forces to extract rents out of their customers. That’s one hell of a ‘the best small country to do business in’ culture, folks.

19/4/2013: More from the IMF on Irish banks...

Getting back to the IMF GFSR report released earlier this week. Some nice charts worth a quick comment or two:

Two things worth noting in the above:

1. Increase in covered bonds for Irish banks, absent, pretty much, any serious issuance between 2007 and 2012 and maturing of some bonds. This may be linked to the deteriorating quality of assets against which the bonds were secured, requiring 'top-ups' with new assets. In effect, this means that to maintain existent level of funding a bank will require more assets to be put aside.
2. Massive, relative to GDP, exposure to MROs + LTROs for the Irish banks. Let's keep in mind that some Irish banks were precluded from participating in the second LTRO due to lack of suitable collateral. Even with that, Irish banking sector exposure to LTROs relative to GDP is the largest of all countries in the sample.

The next two charts plot relationship between banks' lending to households and corporates and the growth forecasts for the economies:

By both charts above, Ireland appears to be basically just on the borderline between the core and the peripheral countries. Of course, this means preciously little, since Irish banks basically are issuing no new loans and thus whatever rates they report are heavily, very heavily biased in favour of higher quality borrowers. Here's how this bias works: the bank in Ireland issues a loan to company A for the amount X and duration W. The rate on this loan is r=f(A,X,W)  such that if A quality is higher then rate r  is lower, if X is larger, the rate is higher, and if W is longer, the rate is also higher. We control all other variables that might influence the rate quoted. If the case of the same company looking for the same loan outside Ireland, the bias above would imply a lower rate quoted, or a smaller loan granted or for shorter duration, or all or any permutations of the above. 

Here is an interesting point. In the first chart above, Irish house loans rates went up during the crisis, but corporate loans rates went dramatically down during the crisis. Now, houses-related loans within the Irish banking system are currently in default at close to 20% rate, while SMEs loans are in default close to 50% rate. High quality corporates are probably in the same rate of default today as in 2007. Which means that corporate loans book of Irish banks should be posting default rates (NPLs) of similar or larger proportions as house lending book. Yet the rates for two types of loans have moved in the opposite direction and very significantly.

On foot of the above, question for our Dear Leaders: Are Irish banks, for purely political reasons (recall Government's repeated exhortations about the need for the banks to 'do their bit for the economy', 'lend to our SMEs' etc), using house loans pricing to subsidise corporate loans issuance?

Just in case you start harping on about Irish corporates having better debt loads than households, IMF has the following handy charts:

And more: Irish corporates have exceptionally poor interest coverage ratios:

Keep in mind - the above applies only to listed firms, not to privately held ones...

17/4/2013: IMF's succinct summary of Irish banking mess

IMF's GFSR Chapter 1 offers a nice visual highlighting the fact that Irish banking system is still the sickest of all banking systems in Europe, bar that of Greece (which doesn't count, for anyone with a will to argue the point, as it has been comprehensively destroyed in rounds of sovereign debt restructuring and by all Troika MOUs is yet to undergo the 'repairs' similar to those allegedly 'completed' in Ireland in 2011):

And a footnote explaining the chart:

19/12/2012: IMF on Irish Banks Zombies

Continuing with reading IMF latest report on Ireland, here's another bit. This time about Irish banks. Now, recall that in recent months and days we heard about Bank of Ireland and AIB meeting their lending targets, the latest data on mortgages printed a little rise in the number of them outstanding etc. The Government has been running around telling anyone willing to listen (not many, admittedly) that banks are 'repaired' and 'well-capitalized'. Here's IMF take on the comedy (emphasis is mine):

"Bank lending has remained weak. Lending flows have fallen to new lows, with gross mortgage loans to households down 10.3 percent y/y in the first three quarters of 2012 and new SME loan drawdowns (excluding financial intermediation and property-related) down 20.7 percent y/y in first half. Interest rates on SME loans (proxied by loan agreements below €1 million) remain well above euro area average levels."

Few charts:

So as the economy is starving for credit, irish banks - heavily subsidized by ELA and ECB funding (see below) are gouging SMEs for every last bit they can squeeze. Jobs creation in this environment? You gotta be kidding!

While the banks have deleveraged somewhat out of ELA and ECB (per below):

1. Their dependence on these sources is still extraordinarily high.
2. Taken in conjunction with lack of lending to the SMEs, the above suggests that what Ireland needs is not just an EU buyout of banks debts carried by the Exchequer, but also a special funding provision arrangement, which can allow Irish banks to retain high ELA/ECB exposures for at least 5-10 years, to allow economy some breathing room to pay these down. 
3. While banks deleveraged, households - despite significant savings and higher than Euro area average returns on savings - are nowhere near deleveraging curve, with debt/income ratios falling so far only  to the levels of mid-2009 (we are not even at pre-crisis levels!)

But IMF has more on Irish banks: "Domestic banks have high and rising impaired assets and remain unprofitable, which is eroding their currently strong capital buffers. Gross non-performing loans have risen to 23 percent of PCAR banks gross loans at end September, up from 17 percent a year ago, with 50 percent provisioning coverage." So: to summarize the above:

• Gross loans declined from  €247.2bn to €229.6bn  Q3 2011-2012
• Loan loss provisions rose from €19.5bn to €26.5bn (cover rising from 7.89% to 11.54%
• Gross NPLs (Non-Performing Loans)  meanwhile rose from €42.1bn (17% of Gross Loans) to €53.0bn (23.1% of Gross Loans), so te loans provisions amounted to 46.3% of NPLs in 2011 and now account for 50% of NPLs.
• However, Net NPLs to net equity ratio has risen dramatically from 68.6% to 109.3%. In other words, equity cushion is being depleted once again, especially as continued accumulation of NPLs coincided with drawdowns of net equity from €32.9bn to €24.2bn.

More form the IMF: "For the first three quarters of 2012, these banks reported a €0.8 billion pre provision loss excluding non-recurrent items (-0.3 percent of average assets) and, under their restructuring plans, they are not expected to break-even until 2014. Although these banks remain well capitalized, with Core Tier 1 ratios of 15.5 percent of risk-weighted assets and 7.5 percent of total assets, these buffers are expected to decline as loans are worked out and will be further eroded if operational losses persist."

What the hell does this mean, you might ask? Oh, why, let IMF speak. Here's the list of core risks faced by Ireland:

"This gradual recovery faces impediments that pose significant risks. Net exports, still the sole engine of growth, are naturally sensitive to any further weakening in trading partner activity. A sustained recovery that generates sufficient job creation also requires a revival of domestic demand, which faces a range of hurdles that create substantial uncertainty around prospects beyond the near-term:

• Financial reform benefits. In the wake of an exceptionally deep financial crisis, with impacts across the system, financial sector reform challenges remain substantial, and there is uncertainty around the timing and magnitude of the benefits of financial sector reforms for reviving banks‘ profitability and capacity to lend to households and SMEs. 
• Debt overhangs. Government debt is set to peak at some 122 percent of GDP, household debt is 209 percent of disposable income, and many SMEs are burdened by property-related loans. These debts drag on growth through private deleveraging, reduced access to credit at higher cost, and concerns about future tax burdens.
• Bank-sovereign loop. These debt stocks are compounded by still large contingent liabilities from the banking system in a scenario where weak growth reduces asset values and heightens loan losses. As a result, the challenges for sovereign and banks in accessing market funding are interlocked, magnifying the growth uncertainties.
• Fiscal drag. Fiscal consolidation will continue to be significant in coming years, with the growth impact depending on the composition of measures and also on external economic conditions and progress in easing credit constraints."

Do note that the banks play a role in all, I mean all, of the above risks. And the risks are correlated:

"Leaning against such developments with additional fiscal consolidation may help slow down the rise in the debt ratio, but would further reduce growth and raise unemployment and increase risks of hysteresis. Moreover, the resulting higher loan losses would generate new capital needs once banks‘ buffers are exhausted, which could raise debt ratios in the medium term, heightening the challenges to
recovery. Such setbacks in Ireland would exacerbate the broader euro zone crisis..."

And now to 'Boom!' factor: The "risks around medium-term growth prospects are a key source of
fragility in Ireland‘s debt sustainability, in part because prolonged low growth could result in
new capital needs in the financial sector."

In other words, were we to so see fiscally-induced and debt-overhang enabled structurally lower growth (at current rates), the debt crisis can lead to a new capital call from the banks on the Government. In this light, all the Government talk about 'improved' banking operations are, frankly put, tripe.

29/8/2012: Slovenia & Ireland lead in banks-related risks

According to latest data from the Euromoney, Slovenia now leads the rise in bank-related risks in Europe. Here's a chart mapping declines in scores across Europe (lower score implies higher risk):

It is worth noting that Ireland shows the second largest risk increase  after Slovenia in absolute level terms, but the largest in percentage terms.

17/2/2012: Harmful Competition? Not so fast...

In recent years there has been much said about the dangers of competition in the banking sector across the EU and specifically in Ireland. Unfortunately, for the proponents of the argument that less competition will be a good thing, the facts are simply not stacking up in their favor.

Since 1997 ECB has published what is known as Herfindahl Index for European banking systems. The index is a measure of the size of banks in relation to overall sector, thus indicating the actual amount of competition in the national banking system. At 1.0 Index reading, the national banking system is fully monopolized by a single firm. Closer to zero, the system is characterized by the smaller, more directly competing banks.

So here are two charts:

Both show that

1. Higher Herfindahl Index reading (lower degree of competition) does not coincide with more stable or less crisis-impacted banking systems
2. During the period of bubble formation there was a reduction, not an increase in banking sector competition in Euro Area, so greater competition did not cause or contribute to the bubble inflation. In fact, the evidence is rather suggestive of the opposite effect.
3. In Ireland, competition pressures in the banking sector actually declined significantly in the years preceding the crisis (2001-2007) and it had subsequently dropped even more dramatically during the crisis.
4. Ireland's banking sector, at any time in the data period covered, was characterized by the levels of competition comparable to those found in Austria, Spain, and France, well below those of Germany, Italy, Luxembourg and the UK and relatively comparable to those in Sweden

So no, 'harmful competition' in Irish banking sector did not cause our crisis, nor did it even contribute to it.

10/08/2011: Bank of Ireland Interim Results H1 2011

Bank of Ireland interim results are out today, confirming, broadly speaking several assertions I've made before. You can skip to the end of the note to read my conclusions, unless you want to see specifics.

The numbers and some comments:

• Operating profit before impairments down from €479mln to €163mln. Profits before tax rose to €556mln compared to €116mln a year ago. Please remember that PCAR tests assumed strong operating profit performance for the bank through 2013. BofI net loss was €507mln reduced by the one-off gains of €143mln. While it is impossible to say from these short-run results if PCAR numbers are impacted, if deterioration in underlying profit takes place, ceteris paribus, recapitalization numbers will change.
• Impairment charges fell from €1,082mln to €842mln - which is good news. The decline is 22.2% - significant, but on a smaller base of assets and contrasted with 72% drop off in operating profit.
• Residential mortgages impairments shot straight up from €142mln to €159mln against a relatively healthier mortgages book that BofI holds. This 11% rise overall conceals a massive 30% increase in Irish residential mortgages impairments in 12 months. Again - predicted by some analysts before, but not factored fully into either PCAR tests or banking policies at large. Despite claims by Richie Boucher that these are in line with bank expectations, the bank expects mortgages arrears to peak in mid-2012. This is unlikely in my view, as even PCAR tests do not expect the peak to happen until 2016-2017. In addition, the bank view ignores the risk of amplified defaults should the Government bring in robust personal bankruptcy reform. The PCAR indirectly accounted for this, but in a very ad hoc way.
  
• So mortgages arrears in Ireland are now running at 4.55% for owner-occupiers and 7.84% for buy-to-let mortgages, with 3,900 mortgage 'modified' in the period and 5,000 more in process of 'modifications'.
• Past-due loans stood at €5.743 billion in H1 2011 down from €5.892 billion in H2 2010. However, impaired loans rose from €10.982 billion in H2 2010 to €12.311 billion in H1 2011. So overall, past-due and impaired loans accounted for 16% of the loan book (at €18,054 million) in H1 2011 against 14% of the book (€16,874 million) in H2 2010. (see table below)

• Total volumes of mortgages held by the bank is now €58 billion down from €60 billion in H1 2010. However residential mortgages held in Ireland remain static at €28 billion, so there appears to be no deleveraging amongst Irish households despite some writedowns of mortgages in the year to date.
• SME and corporate loans volumes dropped from €31 billion a year ago to €28 billion in H1 2011.
• Property and construction loans declined €1 billion to €23 billion of which €19 billion is investment loans (down €1 billion) and the balance (unchanged yoy) is land.
• So far, as the result of deleveraging, bank assets book became more geared toward residential mortgages (52% as opposed to 51% a year ago), less geared toward SME and corporate sector (25% today as opposed to 26% a year ago) and unchanged across Property and Construction (20%), but slightly down on consumer loans (3%). In other words, the bank is now 72% vested into property markets against 71% in H1 2010.
  
• With only 1/2 Bank of Ireland's assets sourced in Ireland, impairments were reduced by 22% by its operations abroad, which contributed to almost 50% reduction in its underlying pretax loss. This suggests that as the bank continues to sell overseas assets, its longer term exposure to Ireland will expand, implying that the positive impact of the disposed assets on the bottom line will be reduced as.
• Table below breaks down impaired loans and provisions, showing - as the core result that overall impaired loans as % of all loans assets is are now at 11%, against 9.2% at the end of December 2010.
• Coverage ratios are generally determined by the nature of the loan assets and the extent and quality of underlying collateral held against the loan. Across the bank, impairment provisions as a percentage of impaired loans declined from 45% in H2 2010 to 44% at H1 2011. The coverage ratio on Residential mortgages increased from 67% to 72% over the period. However, Residential mortgages that are ‘90 days past due’, where no loss is expected to be incurred, are not included in ‘impaired loans’ in the table below. This represents added risk due to potential inaccuracies in valuations on underlying collateral and/or value of the assets. If all Residential mortgages that are ‘90 days past due’ were included in ‘impaired loans’, the coverage ratio for Residential mortgages would be 29% at
  30 June 2011, unchanged from 31 December 2010. Which, means that risk offset cushion carried by the bank would not have increased since December 2010. In H1 2011, the Non-property SME and corporate loans coverage ratio has increased to 42% from 40% on H2 2010. The coverage ratio on the Property and construction loans was 38% at 30 June 2011 down from 42% at 31 December 2010 primarily due to an increase in Investment property loans which are ‘90 days past due’ that are "currently being renegotiated but where a loss is not anticipated".
  
  

• Per bank own statement: ‘Challenged’ loans include ‘impaired loans’, together with elements of ‘past due but not impaired’, ‘lower quality but not past due nor impaired’ and loans at the lower end of ‘acceptable quality’ which are subject to increased credit scrutiny.
• Table below highlights the volumes of challenged loans.
• Pre-impairment total volume of loans stood at €111.902bn of which €24.464bn were challenged - a rate of 21.9%. In H2 2010 the same numbers were €119.432bn, €23.787bn or 19.9%. In other words, they really do know how to lend in BofI, don't they? Every euro in five is now under stress according to their own metrics.
  

• Per bank statement, deposits remain largely unchanged at the bank at €65 billion (through end of June), same as at the end of December 2010.
  
• This is offset by the fact that parts of its UK deposits book has grown over this period of time, implying contraction in deposits in Ireland. The bank statement shows Irish customer deposits at €34 billion in H1 2011, down from €35 billion in H1 2010. The UK deposits overall remained static at €21 billion (due to stronger Euro against sterling, with sterling deposits up from 18bn to 19bn year on year).
• With ECB/CBofI funding BofI to the tune of €29 billion, the above figures imply that the bank in effect depends on monetary authorities for more funds than its entire Irish customers deposits base, which really means that it is hardly a fully functional retail bank, but rather a sort of a hybrid dependent on the good will of Euro area subsidy.
  
• Loans to deposits ratio fell to 164% - massively shy of 122.5% the Regulator identified as the target for 2011-2013 adjustments. Which means that the scale of disposals will have to be large. This in turn implies higher downside risk from disposal of performing assets (selection bias working against the bank balance sheet in the future). The bank needs to sell some €10 billion worth of loans and work off €20 billion more by the end of 2013 to comply with PCAR target to reduce its dependence on ECB funding.
  
• Reliance on the Central Bank funding is down €1 billion to €29 billion - and that is in the period when the Irish Government put €3 billion of deposits into BofI.
  
• The Gov (NTMA) deposits amount to €3 billion and were counted as ordinary deposits on the Capital markets book, in which case, of course, the outflow of the real Irish deposits from the bank was pretty big. BofI provides an explanation for these numbers on page 2o of its report, stating: "Capital Markets deposits amounted to €9.7 billion at 30 June 2011 as compared with €9.2 billion at 31 December 2010. The net increase of €0.5 billion reflects the receipt of €3 billion deposits from the National Treasury Management Agency (which were repaid following the 2011 Capital Raise in late July 2011) partly offset by loss of deposits as a result of the disposal of BOISS whose customers had placed deposits of €1 billion with the Group at 31 December 2010 and an outflow of other Capital Markets deposits of €1.5 billion during the six months ended 30 June 2011."
  
• Hence, excluding Government deposits, the bank deposit book stood at €62 billion. Factoring out Gov (NTMA) deposits into the loans/deposits ratio implies the ratio rising to 172% from 164%.
  
• Wholesale funding declined €9 billion to €61 billion with some improved maturity (€3 billion of decline came from funding >1 year to maturity, against €6 billion of decline in funding with <1 year in maturity). The bank raised €2.9 billion in term loans in 2 months through July 2011 - a stark contrast to the rest of the IRL6 zombies.

• Net interest margin - the difference between average lending rates and funding costs - fell from 1.41% in H1 2010 to 1.33% in H1 2011 as funding costs rose internationally and as Irish households' ability to pay deteriorated further. Net interest income was down 14% as costs of deposits rose.
  
• In addition, the cost of the government guarantee of Bank of Ireland's liabilities rose 58% from H1 2010 to €239mln in H1 2011.
  
• By division, underlying operating profit before impairment charges fell in all divisions.
• Cost income ratio shot up from 61% a year ago to 83% in H1 2011.
• It's worth noting the costs base at the bank: Operating expenses were €431mln for H1 2011, a decrease of €36mln compared to H1 2010. Average staff numbers (full time equivalents) = 5,519 for H1 2011 were 101 lower on H1 2010. The staff numbers, therefore, are really out of line with decreasing business levels

• Bank Core tier 1, and total capital ratios were 9.5% and 11.0% respectively, against 31 December 2010 Core tier 1, and total capital ratios of 9.7%, and 11.0%. Were €3.8 billion (net) equity capital raising completed at 30 June 2011, the Group’s Core tier 1 ratio would have been 14.8%. Note that, much unreported: "A Contingent capital note with a nominal value of €1.0 billion and which qualifies as Tier 2 capital was issued to the State in July 2011." This comes with maturity of 5 years. The note has a coupon of 10%, which can be increased to 18% if the State wish to sell the note. If the Core tier 1 capital of the Group’s falls below 8.25%, the note automatically converts to ordinary stock at the conversion price of the volume-weighted average price of the ordinary stock over the 30 days prior to conversion, subject to a minimum conversion price of €0.05 per unit.

Summary:

• Overall, BofI confirmed with today's results that it is the only bank that we can feasibly rescue out of the entire IRL6 institutions, as impairments in BofI decline is contrasted with ca 30% rise in impairments at the AIB over the same H1 2011.
• However, severe headwinds remain on mortgages side and provisioning, funding and costs.
• The figures for impairments and 'challenged' loans show that the bank faces elevated risks on at least 22% of its loans.
• The figures on funding side show that the bank is still far from being a functional self-funding entity.
• The figures on deposits side show that it continues to lose business despite shrinking its margins to attract depositors.
• The figures on staffing and costs side show that the bank management has no executable strategy to bring under control its operating costs.
• The figures on lending side show the the bank is amplifying its exposure to property rather than reducing it, in effect becoming less diversified and higher risk.
• The figures on deleveraging side show that the bank risk profile can be severely adversely impacted by the CBofI-mandated disposals of assets.
  

And that's folks, is the best bank we've got of all IRL6!

02/06/11: Central Bank Monthly Stats - IRL 6

This is the second post of two covering Central Bank stats for April 2011. The first post (here) focused on Domestic Group of banks. This post deals with Covered Institutions (the IRL-6 banks that are on a life support from the Government).

First up - central bank and ECB lending to banks was broken down into:

• Other assets held by the CBofI - aka lending by CBofI itself to Irish banks - declined from €66.7bn in March to €54.15bn, this mans that mom lending by CBofI fell €12.64bn (-18.93%) and year on year it is now up €40.5bn (+296.8%)
• Borrowing from the Eurosystem (ECB) declined from €79.22bn to €74.23bn - a drop of €4.985bn mom or 6.29%. Relative to April 2010, borrowing increased €38.31bn which almost exactly off-sets increases in CBofI lending, suggesting a transfer of risk from ECB to CBofI
• Total loans to Irish 6 from Euro system and CBofI amounted to €128.4bn in April 2011 down €17.63bn mom (-12.1%). Relative to April 2010, loans increased €78.81bn or 159%.
  

On deposits side:

• Total deposits in IRL 6 have increased from €224.17bn in March to €235.2bn in April an increase of 4.93% mom. Relative to April 2010, deposits are still down €14.07bn or 5.65%
• However, the main driver for these increases were deposits from the Irish Government. Government deposits rose €12.743bn in April (+148.4%) mom and are up €18.566bn (+671.5%) year on year - the very same €18 billion mentioned in the first post.
• Private sector deposits also increased, 1.81% or €1.93bn mom, but remain €20.92bn on April 2010 (-16.2%)
• Monetary institutions deposits dropped €3.63bn mom (-3.32%) and €11.72bn (-9.98%) yoy
  

On lending side:

• Loans to Irish residents fell €6.97bn (-2.2%) mom to €314.14bn. Loans stood at €27.97bn below April 2010 (a decline of 8.18% yoy)
• Loans to General Government were marginally up €47mln to €28.3bn, which means that IRL 6 are the dominant players in lending to Irish Government (as asserted in the previous post)
• Loans to other Monetary Institutions werte down €4.05bn mom (-375%) and
• Loans to Private Sector fell additional €2.97bn (-1.61%) mom and €33.633bn (-15.62%) yoy to €181.71bn.

Lastly, loans to deposits ratios:

• LTDs for all IRL 6 institutions improved by 10 percentage points to 133.56% in April 2011, which represents a decline of 4 percentage points yoy
• LTDs for Private Sector lending fell 6 percentage points in April to 167.9%, an increase of 1 percentage point on April 2010.

In other words, deleveraging over the last 12 months has been led by Government and other financial isntitutions activities, not by private sector pay-down of debt to deposits ratios.

02/06/2011: Central Bank Monthly Stats - Domestic Group

Ok, folks, with some brief delay due to computational complexities - here are charts on Irish banking sector health. These are aggregates from the CBofI monthly stats for April 2011.

This release is broken into 2 post. The first post deals with Domestic Group of banks (see note Credit Institutions Resident in the Republic of Ireland). The second post will deal with Ireland-6 Zombies... err... banks that is known as Guaranteed or Covered Institutions.

Headlines first:

• Total Private Sector Deposits are now at €164.9bn or €1.93bn up on April 2011 (+1.18%) and still €19.65bn down year on year (-10.64%)
• All of this increase is due to Overnight deposits which are up €2.09bn (+2.53%) mom and down just €1.52bn yoy
• Deposits with maturity <2 years declined to €54.94bn in April, down €57mln (0.1%) mom and €13.64bn (-19.9%) yoy
• Deposits with maturity >2 years rose €56mln (+0.52%) mom to €10.78bn, which still implies a decline of €1.71bn (-13.71%) yoy
• Deposits redeemable at notice <3 months were down €162mln (-1.1%) mom to €14.5bn and down €2.77bn (-16.05%) yoy

Chart to illustrate:
Now, take a look at total deposits by source:

Please note the above marking an increase in Government deposits as an important driver of deposits dynamics. Here are the details:

• Domestic Group institutions saw their total liabilities fall to €712.72bn in April - a decline of €10.22bn mom (-1.41%) or a drop of €65.18bn (-8.38%) yoy (see chart below)
  
• Deposits rose across the Domestic Group by €10.46bn mom (+3.7%) although they remain down €12.53bn (-9.63%) yoy
• Clearly, as chart above shows, the increase in deposits was due primarily to Government deposits with Irish banks (well flagged before by many other researchers, this is really a transfer game whereby the Government mandated transfer of some €18bn of its reserves to Irish banks, increasing the risk to these funds, but creating an artificial improvement in the banks balance sheets). Government deposits rose €12.781bn (+143.6%) mom in April and are now up - yes, you;ve guessed it - €18.52bn (+586.2%) yoy
• Another positive driver, albeit much smaller than Government, were Private Sector deposits, which rose €2.0bn (more accurately €1,999mln) or 1.32% mom, while still falling €21.85bn (-12.46%) short of April 2010 levels.
• Monetary Institutions deposits with Domestic Group banks were down €4.325bn (-3.54%) mom in April and down €12.534bn (-9.63%) yoy.

Now, consider loans to deposit ratios:

Thanks to Government deposits, the series are declining for overall Domestic Group:

• Overall LTDs fell 7 percentage points mom from 136.76% in March to 129.67% in April, yoy decline is 9 percentage points
• LTDs for Private Sector declined 4% mom to 155.15% in April, this was consistent with a 12 percentage points decline year on year.

Lastly, let's consider loans to Irish residents within the system:

• Overall loans to Irish residents fell from €386.3bn in March to €379.84bn in April a decline of 1.68% mom and 11.47% yoy
• Loans to Monetary Institutions declined by €3.31bn (-2.84%) mom and are down €11.23bn (-9.03%) yoy
• Loans to Government went up €45mln mom to €28.49bn (+0.16% mom and 150.75% yoy). Over the last 12 months Irish banks have revolved some €17.13bn worth of lending (bonds purchases) back to the State in what can only be described as a circular transfer of money from taxpayers underwriting banks to banks lending back to taxpayers to underwrite the banks
• Private Sector loans meanwhile declined €3.21bn (-1.33%) mom to €238.2bn. This means that over the last 12 months credit supply to private sector dropped a massive 18.8% or €55.09bn. Roughly 1/3 of the annual GDP has been sucked out of the real economy by the banking crisis within just 12 months.

Chart to illustrate:

02/03/2011: CB data - Total deposits

In the next few posts I will be covering the data released yesterday by the Central Bank.

Here are two telling charts rarely seen side by side:
Let's spell out some numbers:

• Total deposits from non-residents fell 36.35% year on year in January 2011 (€190.88bn) and 3.71% mom (€12.685bn)
• Private sector deposits from non-residents fell 22.89% yoy (€22.888bn) or 0.79% mom (€0.616bn)
• Total private sector deposits from Irish residents declined 9.05% yoy (€16.613bn) and 0.82% (€1.6387bn) mom
• No media outlet to my knowledge told us just how much distrust in our financial system do foreigners have
  

Economics 19/9/10: Irish banks - Government intervention still has no effect

Returning to my old theme - let's take a fresh look at the Government and its policy cheerleaders success rate with repairing our banking sector. Here is a quick snapshot of history and numbers as told through the lens of Irish Financials index.
So clearly, we have some really powerful analysts out there and keen commentariat (actually one and the same in this case) on the future prognosis for our banks.

But what about recent moves in the index itself?
Take a look at the chart above, which maps the Financials Index for two subperiods:
Period 1: from Guarantee to March announcement of the 'final' recapitalization of our banks,
Period 2: from Guarantee to today.
Now notice the difference between two equations. That's right, things are not getting any better, they are getting worse.

Next, let's put some historical markers on the map:
Surely, our financials are getting better, the Government will say, by... err... not getting much, much worse. The reality, of course is, any index has a natural lower bound of zero. In the case of Irish Financials Index, this bound is above zero, as the index contains companies that are not banks. As far as the banks go, there is a natural lower limit for their share values of zero. Our IFIN index is now at 80% loss relative not to its peak, but to its value on the day of Guarantee!

Having pledged banks supports to the tune of 1/3 of our GDP already, the Government policy still has not achieved any appreciable improvement in the index.

Forget longer term stuff - even relative to Q4 2009, Government policies cannot correct the strategic switchback away from Irish banks shares that took hold:
A picture, is worth a 1000 words. Unless you belong to the upbeat cheerleaders group of the very same analysts who missed the largest market collapse in history, that is.

Economics 20/8/10: BOSI lessons

Some impressive numbers from BOSI withdrawal from the Irish market are:

• BOSI holds a €32bn loan book in the Irish market (total Irish market is ca €350bn)
• BOSI holds a just over 9% market share of total Irish loans market
  
• BOSI withdrawal of working capital facilities in Ireland will have immediate impact on 12,000 business customers
  
• BOSI also holds €10bn mortgage book, or 7% of all Irish mortgages
  
• BOSI holds 5,000 current accounts
  
• Amazingly, 44% of the bank’s book was impaired as per H1 2010 generating a write-off of €4bn in loans
• Per Bloxham stockbrokers: "the move is likely to have a negative impact in the economy where liquidity is still scarce and the closing off of business lines will force some businesses to wall" (sic).

Now, unless we are willing to assume that Irish banks (with such flagships of prudential lending as AIB, Anglo, INBS etc) are massively more brilliant than BOSI in writing loans, we simply cannot avoid translating BOSI impairment rate to their books as well. Which, of course, makes my estimate of 40% across the books losses for the banking system as a whole, peak to trough, rather safe.

Economics 1/8/10: Merrill Lynch & Minister Lenihan's Banks Guarantee

Those who follow my tweeter contributions (@GTCost) would have probably seen the following quotes from the 3 documents relating to Merrill Lynch advice given to the Irish Government regarding the banks guarantee of September 2008. Nonetheless, I've been asked by a couple of readers to provide their summary in a single place so here it is.

In relation to Minister Lenihan letter to the Irish Times (here) which stated amongst other things that: "In the papers on the bank guarantee recently released by my Department and published by the Public Accounts Committee, the Government’s financial advisers Merrill Lynch strongly endorsed the principle that no Irish bank should be allowed to fail against the backdrop of what the Governor describes in his report as “the hysterical state of global financial markets”. Merrill Lynch also recommended a blanket guarantee of Anglo Irish Bank, including, incidentally, subordinated debt."

The Minister was referring to 4 documents available on the Oireachtas site (here) and numbers 3, 4, 5 and 6. Document 6 contains no information on the actual position of the Merrill Lynch.

Transcript of the meeting Merrill Lynch & DoF 26/09/2008: page 1 "On a blanket guarantee for all banks: Merrill Lynch felt could be a mistake and hit national ratings and allow poorer banks to continue" Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document5.pdf

Same source, page 2: "More generally, institutions should be encouraged to sell assets & get equity." So Merrill referred to equity capital injections (either in the style of Swedish recapitalizations by the state or private equity sales, with the latter being an unlikely outcome. At no time does the document references the need for a blanket bailout! Minister Lenihan was present at the meeting (see last paragraph of the document to prove this, although the official list of attendees at the top of the document does not include his name).

Merrill's presentation on 26/09 does state (p2) that a guarantee, covering subordinated debt holders as well is: "Best/Most decisive/Most impactfull from market perspective" option of considered. It does not state this to be the case from the taxpayers perspective. Minister Lenihan does not represent the markets interests. He represents taxpayers interests. Thus, if he indeed take the advice from the above statement, he thus knowingly or unknowingly altered the terms of his core responsibilities.

The same presentation voices a number of concerns, some of which are blacked out by DofF... What are these? Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document4.pdf)

Email from Merrill to K. Cardiff from 29.09/08 18:43(just a few hours before the guarantee was issued and containing final advice by the investment bank to the Government) does not contain any endorsements of the Guarantee (or of any other singular option), despite being based on 26/09 presentation cited in the earlier quote.

But the email does say (p2): "There is no right or wrong answer [to strategic options available to the Gov]... preserving flexibility is key & solution may be different for each institution"

Does this advice sound like a call for a blanket guarantee on all debt holders?
Link: http://www.oireachtas.ie/viewdoc.asp?fn=/documents/Committees30thDail/PAC/Reports/DocumentsReGruarantee/document3.pdf

There are even deeper issues involved in Minister Lenihan's statement. One of the most troubling ones is why has the Minister summoned the advice of an investment bank that two weeks before the advice was sought (on September 14th) was taken over by Bank of America in questionable condition?

Congressional testimony by Bank of American CEO Kenneth Lewis, as well as internal emails released by the House Oversight Committee, indicate that Bank of America was pushed into the purchase of Merrill Lynch by the US regulators. BofA executives and board were, allegedly, threatened with the firings and were warned of "damaging the relationship between the bank and federal regulators". Full three weeks before Minister Lenihan engaged Merrill Lynch, the company was severely downgraded by its peers in the market (September 5 downgrade by Goldman Sachs is indicative of this and was public at the time).

However, the main issue that arises from Minister Lenihan's letter is that of the purpose of its existence in the first place. Is Minister saying that the Guarantee decision was the correct one? If so, why does he need the defense of being given such an advice? If no, what does his statement about Merrill Lynch advice really tells us? To say that Guarantee was issued because Government advisers said that it was the best option is equivalent to saying that poor weather forecasts has caused Titanic to sink.

Economics 02/06/2010: Central bank data analysis

Latest monthly data from the CB is out and here are a couple of updates on series I've been covering before.

First harmonized competitiveness indicators (EU-wide data update coming soon):
Notice some serious progression on competitiveness front is finally starting to take place. This is good. The trend is also good - strong downward trajectory in the series since November 2009. Accelerating again since March. Data lags should not be this significant, so I will be keeping a watch on earnings data from the CSO.

For all the good news, so far we are still in the zone of low competitiveness, down to March 2006 level and well above the period when Ireland Inc was performing at much stronger rates in the 1990s. Remember, these are real indicators, so price levels changes since the 1990s are factored in already.

Private sector credit. First the totals:
We are back to August 2007 levels and the fall rate is slowing down. Year on year change, subsequently, is flat at -9.3% same as in March. Too early to call it a recovery or even a full stabilization, as seasonality suggests that we might see some trend reversal in the short run. Remember, these are declines on already bottom-hitting 2009!

Next: mortgages.
Levels are down to July 2008 and the rate of decline is -1.6% yoy, compared to -1.4% in March. This, however, can be due to a significant declines in mortgages due to write-offs of defaulting loans. In addition, this deterioration rate might be also masking the fact that pretty much anyone in distress who could have done so has already re-negotiated their mortgages in 2009. Thus, only the really tough cases are still sitting out there.

The data on actual new borrowing is below. At the aggregate levels, there is no turn around in household investment, which, of course, is the main leading indicator of recoveries. Also worrisome is the fact that there is no deleveraging of mortgages debt.

Private sector credit outside mortgages is dynamically virtually identical to the total private sector credit figure reported above. Year-on-year changes seem to be reflective of some seasonal effects, with improved rate of contraction in April. General trend is for flatter rates of decline overall since about January. This means little, however, as we need a term structure decomposition of credit in order to tell if this is really a flattening of the downward trajectory or simply restructuring of non-performing lines of credit.

Now, let's take a look at actual changes in rates and volumes in PS credit. First, new loans:
Notice that both for corporates and households, longer term rates are moving up, while shorter term rates are moving down. This likely reflects banks' and interbank credit markets' expectation for a steepening in the interest rate curve, plus some easing in wholesale cost of credit in March. Also note that mortgage rates for new, and especially for fixed rates, mortgages are rising. Hardly a robust support for the housing market.

On corporate investment side, sizable declines for short term maturity loans - operating capital, and reasonably improving environment for larger investment-suitable loans with longer term fixes.

On volumes side, there is a worrisome increase in all shorter term loans - a sign that both companies and households are reliant increasingly on short bank finance for operational and short-term credit. This might mean two things:

1. These increases might reflect increase in supply against a pinned up demand; or
2. These increases might be consistent with increased cash flow pressure on companies (if non-payment and defaults by clients is rising) and households (if arrears are building up on the side of unemployed and underemployed after the households have gone through their savings and redundancies).

We can't tell which one of these forces is operative here. But it does not look to me like operational demand is rising naturally. Remember, so far we only have strong exports performance across the economy. This means you would expect an increase in trade credits (short-term). Most of trade finance in Ireland is actually not done via Irish banks, but through MNCs-own global arrangements. Apart from exports, it is hard to see where organic demand for short term loans would come from.

An even more interesting picture is emerging when we look at existing clients:
Notice how all of the rates changes (except for 5 year plus maturity corporate loans) are trending up? Are the banks ripping off their existent client base to beef up their margins? Well, lets put these changes side by side:
Notice that the above table comparisons are really only loose approximations. But there is a remarkable regularity with which existent loans holders are being loaded with the almost opposite type of changes in rates charged as compared with new clients.