Irish Banks Astronomical Margin on Deposits

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Thought provoking article by Joe Brennan in today’s IT (free access)

I know the jist of the article’s content is well understood in these parts, but the article lays out the extent of what’s happening in very stark terms. Here are the figures in tabular format, extrapolated from the figures in the article:

1722699723524.png


Or in words, the Banks receive €2.25 billion from the CB, pay their depositors €78 million and keep almost €2.2 billion - a cool 96.5%. And it's not as if in mitigation the money is doing anything useful or productive, it's sitting in the CB's virtual vault.

A few highlights (I’ve abbreviated, augmented and paraphrased the actual text of the article - you can read the original by following the link above)

“Banks are getting 3.75% on your savings with the Central Bank and paying you an average of 0.13% in a demand deposit account”

The three remaining Irish retail banks saw their combined net profits soar 18 per cent in the first half of the year to €2.05 billion. The surge over a five-year period is even more stark, with profits up almost 240 per cent from a total €608 million for the same period in 2029. While there has been some cost cutting in the meantime, and some “growth” due to the takeover of the UB and KBC books, the change in the differential between the rate the banks are paying and the rate they are receiving must account for a very large part of the increase in profits.

Bank of Ireland had €28 billion on deposit with the Central Bank at the end of the first half. AIB had almost €31 billion. For PTSB it’s the vast majority of the €2.81 billion of “loans and advances” it had with AAA-rated banks. Between the three, you’re talking about over €60 billion.

88 per cent – or about €120 billion – of the €138 billion of cash households have with banks in Ireland are lying in current and on-demand deposit accounts as of May, according to Central Bank data. The average rate these earning is 0.13 per cent – among the lowest on the euro zone.

Following the introduction of a few headline grabbing 3% accounts (mainly term based) last year, AIB expected that a deluge of customers flooding into higher-rate fixed-term deposits would result in the bank paying out the equivalent of about 30 per cent of heightened ECB rates to depositors by the end of 2023. On Friday, its chief executive, Colin Hunt, said it would likely be only about 15 per cent by end of this year, which stands as one of the lowest such ratios – known in banking jargon as deposit betas – in Europe.

Brennan concludes on this with “If you are bothered by the bumper profits the banks are making and still have a sizeable amount of cash in low-yielding accounts, then it’s on you.”
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Of course none of this will come as a surprise to the cognoscenti of AAM, and we have been over this ground before with the general conclusion in these part's appearing to be that it's all the stupid lazy depositor's fault. I guess fair play to the banks if they can dispense with any feeling of obligation to the taxpayer's who supported them out when it was needed and can now bleed them for every penny they can make. But is there not some moral obligation to play even a little bit fair ?

At the very least should the MOF not intervene via State Savings and use that august body to challenge the banks behaviour rather than being complicit and endorsing it ?

Maybe if we had a financially literate opposition ?
 
More stark statistics that show how the vast majority of depositors are getting screwed by Irish banks.

It is old ground but these updated stats show the ongoing scale of profits that are been made by the Irish banks with this.

What a perfect operating model for Irish banks - pay the vast majority of customers nothing, offer some higher rates on term deposit products (that only a small minority of customers opt for) so you can claim you offer good rates, ignore the non-Irish competition (because only a small percentage of depositors bother to move money there) - redeposit the near-zero-rate deposits with the ECB at 3.75% - and rake in the profits.

Regarding moral obligation - the Bank of England said that banks have a "fairness obligation" to customers.

Can't see any intervention with State Savings rates because ECB rates are expected to decrease.
 
Then consider that the reserve requirement is 1 percent, I.e. they can lend up to 100 times your deposit, given willing and able borrowers :-D

In the wrong job boys.....keep grafting for those pennies!
 
You can take a horse to water but you can't make it drink.

The common theme here is depositor behaviour. Be it inertia or lack of knowledge/confidence in non-Irish providers.

More state intervention will only compound things. Nannying Irish households lead to the likes of KBC/Ulster leaving. More regulation will only produce even lazier depositors who expect higher rates to land in their lap.

Improved financial literacy among consumers (whatever about politicians) is the key. The likes of the ccpc comparison tool compounds the issue as it only shows Irish banks and state savings. Perhaps people will twig there's easy money to be had by a little bit of work but no sign of people doing anything about it yet.
 
skrooge said:
The likes of the ccpc comparison tool compounds the issue as it only shows Irish banks and state savings.
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This is a part of the problem.

I contacted the CCPC before and asked why they excluded non-Irish banks and was told that they have "strict inclusion criteria".

Bonkers is even worse in terms of transparency and selective inclusion. Bonkers include Freedom24 despite the reports about the broker, fail to make fees clear on N26 and Revolut products, fail to make it clear that the Bunq rate is a temporary rate for new money only and provide a list that is very far from comprehensive - it looks like they mainly only include banks that pay them a commission.
 
Marsupial said:
Define a household. Do thruples count? And would one "household's" TV licence cover one's holiday home too?
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skrooge said:
You can take a horse to water but you can't make it drink.

The common theme here is depositor behaviour. Be it inertia or lack of knowledge/confidence in non-Irish providers.

More state intervention will only compound things. Nannying Irish households lead to the likes of KBC/Ulster leaving. More regulation will only produce even lazier depositors who expect higher rates to land in their lap.

Improved financial literacy among consumers (whatever about politicians) is the key. The likes of the ccpc comparison tool compounds the issue as it only shows Irish banks and state savings. Perhaps people will twig there's easy money to be had by a little bit of work but no sign of people doing anything about it yet.
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I think there is a lack of financial knowledge in Ireland but I can see why.

When I lived in Canada I needed to submit a tax return so it naturally triggered the question of what can I get back. Then I leaned there was tax free allowance available per year so it triggered what do I do with the allowance. Ireland offers very little reason to be educated for the every day person. Start a pension and buy a house is probably 90% of the advice you need.

I don’t blame people for being sceptical of foreign banks. People may be more open if it was big uk banks that are familiar.
 
RTE reported that household deposits over €150 billion presently If we take population as 5.25 million, this indicates €28.500 for everyone in the state including the homeless, immigrants, kids, etc. Are my numbers right?
 
Robert Moore said:
RTE reported that household deposits over €150 billion presently If we take population as 5.25 million, this indicates €28.500 for everyone in the state including the homeless, immigrants, kids, etc. Are my numbers right?
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Here is the CSO survey on wealth.

Household Finance and Consumption Survey - CSO - Central Statistics Office

www.cso.ie www.cso.ie

Latest edition:

Household Finance and Consumption Survey 2020 - Central Statistics Office

www.cso.ie www.cso.ie

Inforgraphic:



1726274517275.png
 
Protocol said:
Here is CSO data on asset holdings:
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CSO numbers on wealth held in cash tend not to match up with the Central Bank numbers collected directly from banks.

CSO numbers are survey based and for various reasons people either lie or don’t know their wealth accurately. On aggregate it produces estimates that are too low. But the relativities between different groups are probably about right.
 
Protocol said:
Here is the CSO survey on wealth.

Household Finance and Consumption Survey - CSO - Central Statistics Office

www.cso.ie www.cso.ie

Latest edition:

Household Finance and Consumption Survey 2020 - Central Statistics Office

www.cso.ie www.cso.ie

Inforgraphic:



View attachment 9336
Click to expand...
thanks for that information graphic, it also displays what I was saying in another thread that Ireland is not a particularly wealthy country with the median net wealth around 200K the same as Spain and well below France , Germany and the UK. All this talk about Ireland being a very wealthy country is false because it is based on GDP per capita which is really the wealth and productivity of global corporations based in Ireland not the actual real wealth of irish population. Also the proportion of irish population with stocks and shares is way way lower than our peers only 10%
 
My income (flow) is higher than my parents.

Their wealth (stock) far exceeds my wealth.


Ireland is richer than Germany (income).

Ireland is much less wealthier than Germany (they have been rich for longer and have built up more stock of infrastructure, assets, etc.)
 
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