There are now four Irish banks paying over 4% for certain deposit products. This is a good rate that outstrips current inflation. But it also spells trouble because banks are built of assets (loans) and liabilities (deposits, bonds, shares).
If they are paying their creditors 4% then they need to make more than that elsewhere to recoup the cost. The issue being that this is not happening. Much of what was taken away from the bank balance sheets to date are commercial property loans. Residential loans are the biggest asset left, and they are not making on average more than 4%.
This is a liquidity exercise and a capital raising exercise. In the past we used to complain about Anglo, and the way that a state bank shouldn’t be paying higher rates than other competitors in the market because it is a direct transfer from taxpayers to savers – that is a mistake.
But it is happening again, and it screams ‘desperation’, our banks are willing to pay twice the rate of some foreign operators in order to attract funds. We’ll update this soon with figures and calculations, just wanted to give a heads up first.