Guardian: Irish Banks Offering "Unsustainable but Super" Deposit Rates

[Lightning]

The Guardian have realised that another elephant in the Irish banks room is deposit rates ...

http://www.guardian.co.uk/business/...roll/2011/may/04/ireland-banks-interest-rates

Extract:

Bank of Ireland chief executive Richie Boucher at a recent briefing with journalists described this is one of the big issues facing the banks.

His problem is that the so-called "net interest margin" is not in their favour. They are paying out more than they are getting in on a stagnant loan book which includes loss-making tracker mortgages.

"Deposit pricing is red hot in the Irish market," said Boucher. "It is going to be impossible to maintain deposit pricing," he added.

Bank of Ireland is offering ordinary savings account holders rates of 3.25% and an eye-watering rate of 6% in a "double your interest rate" deal for those who leave their money on deposit for two years.

Irish savings rates almost double UK rates

This compares with best buys for ordinary savers in the UK which are listed in today's Guardian as Nationwide Building Society with a 3.05% interest rate, ING Direct at 3% and Tesco at 2.9%.

No wonder Irish savings are at record levels – around €93bn.

The question is, if the rates are unsustainable, won't they disappear? Not this side of Christmas, says Dolmen Securities banking analyst Oliver Gilvarry.

 

[camlin90]

In other news, apple costs 30c and orange costs 50c.

It's worrying that BOI are finding it "impossible" to maintain deposit pricing though - looks like they'll be losing whatever deposits are left.

 

[marksa]

At some time, the Irish Banks are going to have to wake up and stop paying these ridiculous rates for deposits. That will only be the case when they are seen to be viable organisations outside of state support/bail-out. With a balance sheet stuffed with long-term loss-making tracker mortgages that won't be any time soon.

 

[Bobby1]

At some time, the Irish Banks are going to have to wake up and stop paying these ridiculous rates for deposits. That will only be the case when they are seen to be viable organisations outside of state support/bail-out. With a balance sheet stuffed with long-term loss-making tracker mortgages that won't be any time soon.

I agree, the problem with it is though all you need is 1 bank to offer crazy rates and this forces all the other banks into doing it, or risk a wave of outflows of business, and now more then ever no bank can afford to lose any more funding then they are due to persistent security threat rumours of Ireland inc.

I personally would like to see deposit rates come way down to sustainable levels. In my view mortgage holders who by and large are cash strapped are subsidising deposit rates and keeping them at artificially high rates. Competition is so intense with everyone becoming "rate tarts" chasing every extra penny in interest they can, banks are forced to pay excessive deposit rates, and to help cover the cost of this, they are charging higher lending rates then what they should be. Its almost like a case of the rich get richer and the poor get poorer! I know banks would be paying quite high rates anyway to attract business as retail deposits seem to be their main source of funding at present, but its absolutely crazy that this is still continuing. With ECB increases on the way, banks shouldn't be passing them on deposits, they are high enough and should be taken to stem the margin loss on deposit rates. All this is doing is prolonging banks recovery to become sustainable banks. Plenty will argue none of the Irish Banks are sustainable and are on life support etc... but business practices have to change in the favour of banks on some level so tax payers don't have to keep propping them up!

 

[Gekko]

Maybe I'm being naive, but weren't some of Anglo's problems caused by borrowing short term funds and then lending these out long term? So once the short term funding cost rose or became unsustainable, the bank was goosed?

The "classic" model was to take deposits and then lend these out. If the bank pay 4% to depositors and lend this money out at higher rates, where's the problem?

 

[TSThomas]

No wonder Irish savings are at record levels – around €93bn.

Guess they've not been following NAMA Wine Lake or umm, any Irish news source these past months

 

[bugler]

The sooner we can discourage the prudent financial practice of saving the better for us all.

 

[Bobby1]

whos trying to discourage the practice of saving? Thats a bit of a stupid statement!

 

[bluemac]

Ask yourself if these rates are too high where do they get the money to pay the interest.... Oh yes from us through the higher tax we are paying..

so they give you an extra 3% and have taken the other 20% off us all in higher taxes.

 

[bugler]

whos trying to discourage the practice of saving? Thats a bit of a stupid statement!

You are.

You want lower deposit rates. That discourages saving. Or maybe you can explain how lower deposit rates have no impact on a decision to save?

You have, arbitrarily, decided that ("cash-strapped") mortgage holders are subsidising savers. So you are advocating a preference for those who have taken on debt (mortgage holders), over those who have savings. Again, discouraging saving.

 

[bugler]

Ask yourself if these rates are too high where do they get the money to pay the interest.... Oh yes from us through the higher tax we are paying..

so they give you an extra 3% and have taken the other 20% off us all in higher taxes.

The banks need cash, apparently. But it seems people are awfully selective about how they get it.

 

[Bobby1]

What Im proposing is for banks to return to what they should be doing... business. How can you justify a bank paying more on deposits then it charges on lending???

The habit of saving should not be driven solely by the best rate, its about as you stated a prudent financial practice, something that was lost long before the financial crisis. Consumers turned easy credit into their savings.

There is no "advocating a preference" here, its quite simple, in order for a bank to make a profit, they need to improve their net interest margin. While they pay higher rates on deposits then lending, this wont happen.

My view of mortgage holders subsidising savers still stands for this reason. Im not blaming savers for this, if a good rate is available, they will take it which is fair enough, but what im trying to say is this short term business model banks have adopted needs to end.

 

[oldnick]

Can someone explain to me why I'm paying an amazingly low tracker at under 2% with AIB and yet am receiving over 3% on my cash savings with same bank ?

I have written and spoke to bank and proposed that i pay off my loan with the cash I have on deposit - but perhaps they would possibly reduce the loan amount by ,say 2-3%.

No way, says the bank mngr.

considering I'm earning roughly the same as I'm paying -once DIRT etc taken into account -I don't see the point of paying of the loan as there is some advantage in having cash (and I know I should consider moving it abroad).

But why can't the bank see that they are losing thousands on my loan and won't offer any type of incentive for me to pay it off?
I'm not complaining ,purely puzzled and perhaps a bit angry that "our" banks still seem to be run by idiots.

 

[TSThomas]

Strange alright considering PTSB are offering a 10% Bonus if you make a lump sum payment of €5000 on a Tracker at the moment.

That said, as you point out, you're better off not paying anything additional given the current rates disparity, so either maintain the status quo or hope they make a PTSB style offer before making a lump sum payment.

 

[bluemac]

The banks need cash, apparently. But it seems people are awfully selective about how they get it.

no point in them having 90billion in savings deposits that they are paying 6% on how will this help the banks, borrowers or tax payers?

I do understand why they are doing it to get people back to help make them look more stable..

 

[bugler]

If they don't compete on deposits then they won't get any. They are already haemorrhaging money, I've no idea if the improved rates are helping in any significant way. In any case, are we discussing the cold-sore on a terminally ill patient?

We are stuck in a circular hell, caused by the incest between private and public sector responsibilities.

The banks are a parasite on this country. Apparently they must live, but they can only live by sucking the blood from their host.

 

[bluemac]

compete with who for deposits? its like Anglo Irish are making loads giving away money to developers... quick lets all compete...

doesn't mean its right.

put it this way if the goverment set up a BRAND new bank. no past etc ect

I would much rather put my money in there at 2-3% fixed then have it abroad mainly to help things here...

Then lets use this new bank for SME investments (non property related) with garantees from the state on those loans (which they will do today anyway).

Now people have a choice bring your savings back to ireland safely and it will be invested in Job creation. IPO in 10 years more money back to the us.