DEPOSITS PLACED with Allied Irish Banks in Britain and First Trust Bank in Northern Ireland will not be covered by the Government bank guarantee from August 17th as the State-controlled bank attempts to reduce costs.

The bank’s profit margins have been squeezed by fees paid to the Government for having deposits and other types of funding covered under the State’s Eligible Liabilities Guarantee (ELG) scheme.

The bank said moving AIB Group (UK) outside the ELG was part of efforts to “normalise funding mechanisms”. Deposits at other AIB subsidiaries and at EBS are unaffected by the change.

Minister for Finance Michael Noonan changed the rules of the guarantee scheme last year to allow banks to move liabilities outside the ELG to reduce fees incurred under the guarantee.

AIB paid €488 million in ELG fees in 2011 to cover liabilities including €10.2 billion of deposits at its UK operations at the end of last year.

The bank paid €306 million in fees the previous year.

UK deposits, which increased by €1.2 billion during 2011, accounted for 17 per cent of deposits at the bank at the end of last year.

Bank of Ireland had deposits at its UK subsidiary moved outside the ELG scheme from March 30th after a request to Mr Noonan to exclude its subsidiary in the UK.

Last week the Government said deposits lodged with Bank of Ireland’s Isle of Man business would fall outside the guarantee scheme from August 10th.

Mr Noonan said at the end of the latest review of the bailout programme last week that the banks would withdraw UK deposits from the ELG over the coming months but not their Irish liabilities.

A steady reduction in liabilities covered by the ELG is a target of the troika under the programme.