Bank of Ireland shares

What will probably happen going forward is if ECB raise rates by 25bps they will increase deposit rates by something like 20bps and increase their margin by 5%.

Most people forget about the effect of dirt on interest rates. Dirt is charge at 33%. For a person with 50k in the banks putting money away for a year @ 3.5% gives you 1172 euro net.

Older people will be reluctant to place money outside the country. If you need the money it's locked away.

Exactly my thoughts - the big retail depositor holders are boomers......the idea they would hand over their life savings to a FinTech in another country is just not happening.

Listen these same boomers enjoyed unprecedented increases in their homes over the last 40yrs.........that they 'transfer' some of their wealth in the form of lower interest rates on their cash savings such that new mortgage holders don't get killed on monthly payments is kind of fitting......also don't forget that interest rates and asset prices are inversely correlated.......I can make an argument that Mary and John should HAPPILY take a little less on their 100k on deposit with BOI, such that BOI can offer a 4% mortgage to someone that will help support the same Mary & John's €750k house price value over the cycle......if the idea for Mary & John is to pass as much wealth as is possible on to their kids......getting a little scalped on interest rates on savings work very well

Credit Unions are trying to prevent deposits. They have only lend out about 30% if the money they have on deposit. I am not sure what deposit rate they get as (AFAIK anyway) they do not have access to the ECB deposit system.

At present they are starting to try to break into the mortgage lending market. They are not giving a fixed rate but more or less are guaranteeing a 4% variable rate and are not going to put it up any time soon

Everywhere I look in an Irish context I see excess deposits.......that can change for sure.......if in aggregate folks run down their savings in a type of precursor to a recession that could certainly occur......right now I don't see anybody particularly desperate in a domestic context for deposits but more importantly desperate for deposits married to opportunities deploy those deposits into loans/credit in a profitable prudent manner.

The pillar banks remain the intermediaries of money in the Irish system with the highest and best use of deposits - they've the scale in mortgages, personal loans, home improvement, autos etc.

The reason they arent taking price to a certain extent on loans (when they likely could) is that taking price on loans would leave them open to a rear guard action from competitors who in that context would look at the higher loan rates and say OK might be worth me paying up for deposits actually - this is getting interesting!!!

That does leave to a certain extent then fintech's that funnel the money out of the country to deposit institutions desperate for deposits and who have good high margins uses for them but not in Ireland - Latvia etc. Mary & John are not sending 100k to Latvia even if the app/website isnt in Latvia and they get told that their 100k deposit is covered by a deposit scheme. Aint happening.

Yeah there are excess deposits everywhere in Ireland whether it’s John and Mary or funds using Irish banks to demonstrate substance. These excess deposits become more valuable as liquidity is pulled out of the financial system with rate rises and QT.

When rates were low or negative this deposit basis cost banks and but now that we are in positive territory banks can make money from deposits.

As for your point on fear of new entrants to the market if lending rates are too high. I honestly don’t see the risk there because we know the Irish market is too small for any new banks to enter and make a reasonable profit. There are too many fixed costs involved and not enough volume. That only leaves Credit lending firms who can enter on a small scale but they won’t because they don’t have a deposit book to price from and instead need to use market rates which exposes them to being undercut by the banks and put out of business.

Fintech is not the not the only way of accessing a better rate. At the end of the day if there is a room for arbitrage the market will take advantage of it either directly or indirectly.

On the topic of Fintech now that banks are making a profit watch the feeding frenzy of banks buying them and put fancy front end over their existing systems. Just look at BOI they have the worst front end out there and haven’t made any changes besides the bare minimum for the last 15 years.

Yes but the dividend will be limited. They have about 20+ billion in deposits and 5.5 billion lend out. They have a high cost base with building often only open 1-2 days a week.

With no direct access to ECB deposit rate, BD ks probably have a 0.5-1% margin on there money. Allowing a 5-6% average rate on there lending and the probility of needing to increase there reserves after a couple of years of negative interest rates they will be lucky to be able to pay 1-2% on deposits and shares

Good to see some political pressure on this at long last.

David McWilliams article in yesterday's Irish Times probably focussed minds more than any customer or shareholder can.

Let's see which way banks shares go tomorrow.

You really know which way the wind is blowing when that spineless wonder McGrath bursts onto the scene with some fighting talk

That because deposit accounts pay so little it's not worth moving money into a deposit accounts

Any account with a debit card is a current account. There is a lot of people working as sole traders out there so they need a current account. As well many people only have one account so of it has a debit card it's a current account.

But the main thing is that the banks don't want to attract any more deposits at present. Nor do the Credit Unions (who don't even tell people until year end that they will be getting zero per cent on their money), nor does the government in the shape of the NTMA. Politicians will make soundings, but it won't make much difference.

Banks didn’t want to attract deposits when they were being charged negative rates by the ECB as they were making a loss where they were unable to pass on the negative rates (I.e. retail deposits)

Today they are making money on customer deposits (I.e. return on use of the deposits less what interest they are paying depositors)

The bear minimum return the can get on use of deposits is the ECB rate and they are presently paying more or less zero so that is one hell of a lot of profit from deposits…..and obviously the more deposits the more profit.

The current Minister was on RTE Radio 1 News at One on Friday 18 August. He brought up the point which I raised about how much is in BOI current accounts. Overall in the banks the figure is €140 billion out of a total of €150 billion. He included demand accounts as opposed to term accounts in the current account definition, because of the zero interest or a very small interest rate applying. He expects that there will be some increases for savers from the banks in the coming weeks. But people need to get their money into interest bearing products if they want to get the benefit. Listen at 28 minutes 40.

https://www.rte.ie/radio/radio1/news-at-one/programmes/2023/0818/1400466-news-at-one-friday-18-august-2023/

Whatever about using paper forms for payments their IT and customer interface are one of the worst out there. Probably need to spend close on 1bn to get it up to speed…sounds like a lot but you’re talking 15 years of zero investment. So about 70m a year. Best option would be to buy some Fintech firm for 0.5bn and use that front end and spend another 0.25bn plumbing it into the existing systems.

once that is done they need to seriously look at the customer offering by sector and structure the company accordingly. For example everything feeds into branch manager who from what I have seen are only interested in retail banking and lack the ability/or just couldn’t give a sh1t about corporate banking despite it being a profitable business if run correctly.

Just on this point. If you recall, around the time ECB rates went to ~-50bps, banks brought back in bank charges. If you do the calculations, those fees were about the same as the banks were charged by ECB on balances. And after a while, banks started charging negative interest on balances >1m.

So while you are correct they didn't pass on the negative interest charges from ECB, they actually did. They couldn't call them interest charges as there would have been a lot of capital flight if the did (public would not have accepted negative interest), so they called it fees. On average the fees covered the amounts paid to the ECB. Smaller balance holders offset larger balance holders (as fees were flat).