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Department of Finance note: Deposits volumes remained stable in May 2013 at €150.7bn

Underlying volume movements were lower by c.€1.8 billion during May.

Month-on-Month

Headline deposits declined by €2.8 billion during the month driven by outflows in the UK and ROI retail. The weakening of Sterling by c.2% during the month resulted in an estimated negative impact of €0.7 billion. In addition, a reclassification during the month of €0.3 billion contributed to the decrease in headline deposits. Adjusting for both of these items, underlying deposits decreased by €1.8 billion during May. The main driver of this was a decrease in balances in ROI retail accounts, due to a combination of factors, notably the lower interest rate environment and the improving funding position of the covered banks, which has eased competition for deposits.

Year-on-Year

May 2012 versus May 2013 now shows a fall in headline volume growth for the last 12 months with headline deposits down c.-€1.4 billion (c.-0.9%). However, as discussed above this includes two significant once-off reclassifications which if ignored; cumulative year on year growth would be c.+€0.1 billion.

The moderation in the rate of growth of deposit volumes is not unexpected when account is taken of the deposit gathering initiatives by the Covered Banks in 2012, together with the substantial completion of their deleveraging programmes. These factors have resulted in a lower balance sheet funding requirement among the covered banks, which is supported by the return of the Covered Banks to market issuance.

As anticipated, we continue to observe an insignificant impact on deposit volumes in the Covered Banks as a result of the ending of the ELG Scheme for new liabilities on the 28th of March 2013

Covered Banks usage of Eurosystem funding

The decline in drawings from the ECB by Covered Banks of c.€3.9bn (or c.-9.9%) during the month of May, reflects the improving funding position of the banking system.

ECB borrowings declined during the month of May which reflects a reduction in the balance sheet funding requirement within the Covered Banks during the month, with issuances in the market most notably BOI issuing an unsecured senior bond at the end of the month, and the Covered Banks also used cash reserves to pay down some of their ECB borrowings.

Year-on-year borrowing from the ECB is down c.-€29.1bn (c.-45%) to stand at c.€35.55bn at end-May. The reduction in borrowing from the ECB has been achieved through managed deleveraging, deposit gathering and the return of AIB, BOI and PTSB to international funding markets.