Morningstar DBRS, the debt ratings agency, on Wednesday morning described as “exceptional” the recent results of the three remaining Irish banks, whose combined net profits doubled last year to a record €3.7 billion.
The latest Central Bank monthly release on retail interest rates in the market – released a few hours later – gave a clear reason for the jump.
The banks are now, as a result of a raft of European Central Bank rate hikes, earning 4 per cent on the more than €60 billion of spare deposits they’ve stored with the Central Bank. It’s a major turn of fortunes for the lenders, who were being charged negative rates of minus 0.5 per cent less than two years ago on surplus funds.
The cost of the most deposits for the banks? Well, the Central Bank release said in its latest release that the average rate banks are now paying for overnight, or on-demand, was 0.13 per cent in January. It may now be, according to the regulator, standing at an eight-year high. But it’s miserly.
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Despite all the noise that the banks make about paying rates of up to 3 per cent for savings, they’re counting on most customers keeping their money in on-demand accounts. More than 90 per cent of household savings are in such products.
The weighted average rate on new household deposits locked in for agreed terms was 2.51 per cent in January.
The Morningstar DBRS recap of the banks’ performance last year highlighted that, all told, only 10 per cent of the ECB rate hikes have been passed on to customers. This is known in banking circles as a deposit beta of 10 per cent – and stands at one of the lowest such ratios across Europe.
Even the banks have been surprised by the level of inertia among households.
AIB, for example, thought last summer that its deposit beta would end 2023 at almost 30 per cent as customers moved to higher-yielding accounts. It now reckons that its deposit beta will be only 20 per cent this year, even though there has been a pick-up in recent months of savers moving products.
But there is no pressure on the banks to really improve the rates being offered on on-demand accounts as long as customers stay put.
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