COLLATERAL EASING CLD SAVE BANKS OVER 100 MLN EUR PER YEAR
Ending of self-issued bonds wld give investors confidence
Feb 9 (Reuters) - The European Central Bank's decision on Thursday to further ease its collateral rules could put an end to Irish banks having to self-issue bonds and potentially provide a confidence and cost-saving boost to the slowly recovering sector.
Irish banks, at the root of the financial crisis which caused Ireland to secure an 85 billion euro EU/IMF bailout, had to resort to issuing short-dated government-guaranteed notes to themselves last year following a tightening of ECB collateral rules and a series of credit rating downgrades.
The amount of self-issued bonds - which the state charges a fee of around one percent to issue - stood at 17.5 billion euros at the end of 2011 but has fallen to 12.3 billion, based on data reported by the country's debt management agency.
Ireland's central bank confirmed on Thursday that it would participate in the ECB's initiative under which it will accept pools of secured and unsecured credit claims as collateral against Eurosystem operations.
"It gives additional confidence in the banks by further easing funding and liquidity concerns and it has the prospect of eradicating this self-bond issuance phenomenon which would bring an annual cost saving of over 100 million euros," Stephen Lyons, credit analyst at Davy Stockbrokers said.
Ireland's banks are dependent on emergency funding from the ECB in the wake of large deposit outflows, chiefly in the lead up to the country's bailout in November 2010, and lenders are under pressure to cut their balance sheets to wean thenselves off the support.
Overall, banks based in Ireland had nearly 108.4 billion euros of outstanding loans with the ECB at the end of December, of which just under 72 billion euros was held by banks servicing the local economy such as Bank of Ireland and Allied Irish Banks, down from 73 billion euros the previous month.
However deposits have stabilised in recent months and Irish resident private-sector deposits rose 108 million euros ($142 million) in December, according to central bank data.
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