May 13, 2011 / 1:42 PM / 9 years ago

UPDATE 2-NTMA deposits push Irish banks' ECB borrowing down

* ECB borrowings fall to 106 bln eur from 114.5 bln eur m/m

* NTMA says is depositing 19 bln eur in stress-tested banks

* AIB formally launches action on junior debt

* Sweden backs call for new bailout terms, EC trims forecast

(Adds details)

By Padraic Halpin and Carmel Crimmins

DUBLIN, May 13 (Reuters) - Irish-based banks’ borrowings from the European Central Bank and Ireland’s own central bank fell by 12 percent in April primarily due to the country’s debt agency temporarily placing deposits with some lenders.

Irish banks, at the root of the country’s financial crisis and its 85 billion euros EU-IMF bailout, are reliant on central bank loans to fund their day-to-day operations due to tens of billions of euros in deposit outflows and their exclusion from interbank lending markets.

The banks’ ECB borrowings, which for the first month were subject to an easing of collateral rules, fell to an eight-month low of 106 billion euros ($150 billion) as of April 29 compared to 114.5 billion euros as of March 25.

Ireland’s central bank lent banks based in the country 54 billion euros in special funding, down from the 66.8 billion euros lent the previous month, data showed on Friday

However the central bank said the temporary placing of deposits by the National Treasury Management Agency (NTMA) was the primary factor for the reduction in its funding. [ID:nDUB003361]

The NTMA, which manages the state’s finances and has received 17.8 billion euros from the EU and IMF as part of a drawdown of an 85 billion euros bailout, said it had deposited funds earmarked to recapitalise the banks with the lenders.

Under the EU-IMF bailout, Dublin has until the end of July to recapitalise its banks to the tune of 24 billion euros.

“The deposits in the aggregate amount of 19 billion euros are being lodged with the banks that were subject to the 31 March 2011 stress tests,” the NTMA said in a statement.

“On or before 31 July 2011 the deposits will be returned to the state to provide the funds necessary for the 31 July recapitalisations.”

DRAW A LINE

Dublin believes the stress tests have drawn a line under its banking woes and has moved onto trying to better the terms of its bailout. One minister told Reuters on Thursday rescheduling loans issued under the deal was on the wish list. [ID:nLDE74B1Z9]

Sweden’s finance minister, whose country is contributing to the bailout for Ireland despite not being a euro zone member, said on Friday that calls to renegotiate the package should get a hearing. [ID:nLDE74C1A9]

Anders Borg said Ireland had made progress on its programme, a view echoed by Irish deputy Prime Minister Eamon Gilmore who told Reuters in Norway that the progress put Ireland on track to return to debt markets by the end of next year. [ID:nLDE74C0C6]

Gilmore added that some European states’ opposition to Dublin’s request to lower the interest rate on its emergency loans was not sustainable because Ireland’s economy was going to return to growth this year. [ID:nnLDE74C0NC]

The European Commission said on Friday that Ireland was still on track to snap three years of economic contraction, although it trimmed its 2011 gross domestic product forecast to 0.6 percent from 0.9 percent previously. [ID:nnBRLDGE7E8]

It maintained its 2012 GDP forecast at 1.9 percent and said Ireland was broadly on track with its fiscal adjustment.

Dublin is hoping that pumping 24 billion euros of fresh capital into its four remaining lenders and demanding they shrink their balance sheets by 73 billion euros by the end of 2013 will cut their dependence on the ECB. The government hopes some five billion euros of the 24 billion bill can be raised by asset sales and imposing losses on junior bondholders in the lenders.

Allied Irish Banks ALBK.I, which has been effectively nationalised, formally launched an offer on Friday to buy back some 2.6 billion euros of subordinated debt at a discount of up to 90 percent.

In response to this “distressed exchange”, ratings agency Standard & Poor’s downgraded AIB’s lower Tier 2 debt to D, its lowest rating, on Friday.

Ireland’s six domestic banks, two of whom are being shut down after casino-style lending practices, have lost over 90 billion euros in mainly corporate deposits since the end of 2008, when the banking crisis first gripped. “I wouldn’t say (the drop in April) is attributable to a massive inflow of deposits. There are some technical reasons and also the fact that the NTMA has pledged some funding which has obviously helped as well,” said Glas Securities analyst Michael Cummins.

Reporting by Padraic Halpin and Carmel Crimmins; Editing by Ron Askew and Toby Chopra

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