Deposits and Loans on Banks' Balance Sheets

As well as credit card data the Central Bank's Monthly Statistical release gives information on the balance sheets of financial institutions in Ireland. Here we will use the data from Table C3 from the current release (November 2009) and previous releases to consider the level of customer deposits (liability) and loans extended (asset) of Irish financial institutions from August 2006 to November 2009.

This graph gives the total amounts of deposits and loans of Irish residents in Irish financial institutions.


There has been little change in the amount of money Irish residents have on deposit in Irish financial institutions. In this series it started at around €160 million in August 2006. Two years later it was at its peak of just over €180 million in September 2008 and as of Novemeber 2009 it stands at €172 billion.

The pattern of loans to Irish residents on the balance sheets of Irish financial institutions follows a much more pronounced pattern. In this series the aggregate amount of loans forwarded was €290 billion at the start of the series. There then was a continual rise until October 2008 when the peak of €394 billion was reached. 12 months later the figure had fallen to about €367 billion.

During the phenomenal credit expansion there were months when loans expanded by more than €5 billion. The peak was in September 2007 when the amount of loans on banks' balance sheets rose by some €8.7 billion (close to €300 million a day!).

First we will break down the deposits into their constituent parts.

Irish people have about €35 billion in low-interest current accounts. About €40 billion is deposited in interest earning demand accounts and this amount has been trending upwards recently.

Altough the total amount on deposit has been relatively stable, a noticeable pattern has been the relative decline in agreed maturity accounts (i.e. 3 month to 2 year accounts) in favour of notice accounts (i.e. 7 day to 90 day notice accounts). In Septmber 2008, after a period of rising interest rates, there was more than €100 billion in agreed maturity accounts. This has now fallen to about €82 billion. This fall also coincides with a period of uncertainty in the Irish banking sector. In the following period, as interest rates have been falling, the amount in notice accounts has risen from €8 billion to close to €16 billion.

We will now consider the breakdown of loans issued.

Of the more than €100 billion increase in loans forwarded to Irish residents "only" about €20 billion of this was for residential mortgages. More than 80% of the loan increases was in other categories.

The biggest category of loans is term/revolving loans and this rose by some €30 billion before beginning its recent decline. Short term loans issued rose by about €28 billion.

The biggest increase, and the only main category not to decline, has been in other loans. This has risen by 700% in a peculiar "stepped" pattern, from €6 billion to nearly €42,000. This series is relatively stable between most months but there are five occasions when there is a monthly "jump" of over €4 billion.

The decline over the past 12 months in the amount of loans issued has been the result of two factors:

1. The amount of new loans issued has fallen dramatically means the repayments on existing loans is now relatively larger.
2. Increased re-evaluation of existing loans by financial institutions (write-downs, increased provision for bad debts).

As per the most recent Central Bank Statistical Release:

As has been the case throughout most of 2009, the headline month-to-month decline in November was strongly influenced by valuation effects. These mostly relate to an increase in the level of bad debt provisions by reporting credit institutions during the month and account for just over 50 per cent of the monthly decline. The remainder represented a fall in the underlying stock of [loans], as repayments were marginally higher than drawdowns during the month.

It will be interesting to track to impact the National Asset Management Agency (NAMA) has on the banks' balance sheets as it comes into operation in 2010.