Irish Property Market chat II - *read mod note post #1 before posting*

Sounds like the CBI are certainly looking at introducing a 50% leverage limit to be in line with other European countries. Found another article that suggest most borrow up to 70% in the residential sector, so with rising interest rates and a potential recession. Will be interesting to see how this plays out.

My understanding is nowadays banks pay well for short term bonds of 1-3 months that provide liquidity for equity which allow them to obtain lending from central banks. The draw for them will not be as strong as interest rates rise.

If KBC or Ulster had remained ( KBC especially as it's within the euro) they would have been well positioned to take advantage and to access deposits which they could have collateralised elsewhere in the EU maybe.

We are unlikely to see deposit above the ECB lending rate, but even rates of 1% seem unlikely unless the ECB rate pushed above 2.5-3% which is unlikely.

I think you will find the majority is 80% borrowed with the remaining 20% from investors. The majority of the property won’t be Irish property.

No chance….what you have across Europe is banks merging because unless your of a certain size it’s an uphill battle to make a return.

Add on top of that the reputation of the CBI being very difficult to deal with compared to other regulators and you would be mad to try and enter the Irish market….

at the end of the day the existing banks can’t find enough customers to lend to so a new entrant would need to massively cut margins to steal business.

Halifax and Anglo along with most banks were paying for deposits because they needed them to be able to continue lending to ever Tom dick and harry….

thats not correct the banks have to hold capital for RWA’s under CRDIV and need to hold enough liquidity to meet the liquidity coverage ratio.

Two examples would be:

A loan to a property developer (defined as an individual or company with more than 6 properties) would require to hold capital of 100% of the value of the loan. So if they lend 10 million the would need to set aside 10 million in capital.

A non operational deposit from a fund for example requires that 100% of the deposit must be available at any time. In other words you can’t fund any lending from it and is practically useless to a bank with the exception of charging transactional fees.

Let’s also not forget that interest rises generate higher levels of default which means more capital needs to be put aside…. Just look at the levels of provisions the UK banks have put aside at Q3.

A step yield curve is good for a bank but if it’s not run well it will also expose weaknesses.

The only reason there is excess deposits at the moment is due to QE where long term money was transformed to short term money. This is already changing and once liquidity dries up due to QT transforming short term money to long term money you will see this excess liquidity removed from the market and banks paying for deposits again.

Retail deposits or total banking deposits that are over inflated and is as useful a sat as GDP per capita.

??

And if they use the capital trapped in the Irish sub for lending elsewhere you get a better return on equity and happy shareholders…The return from the Central bank is the lowest return available. Yes it’s better than negative rates but when you take into account the cost of inflation to the bank you probably end up in a slightly better off or in a similar position to before. That is unless you don’t invest in technology and refuse to move with the times and end up loosing younger customers and future profits.

It’s a no brainier because you have fixed costs regardless of size due to regulation and IT costs so unless you have a big enough balance sheet you are better off deploying the capital elsewhere.

KBC had, and even still have, a branch network. They took on a number of former Halifax and NIB branches so they even have a few that look like proper old banks.

They stopped the rollout and then made a cut to what was there a few years ago, the rest are closing in March.

They still take cheques if you are still using the current account. Only time I ever used the branch was for that, not particularly long ago.

Don't know about cash, that might have been pulled already.

KBC continue to accept cheques lodged by personal customers.

Branches aren’t the only fixed cost…regardless of size of bank they need a banking platform which will cost more or less the same for 100k customers or 1m customers.

The need payment systems and access to payment networks.. most of this will be a fixed cost.

They need AML and Risk. Systems to comply with banking regulations…yet again all fixed cost.

They need access to treasury systems to monitor liquidity and be able to trade bonds etc and make placements with central banks..more fixed cost.

on the people front they need people in central functions such as finance legal risk IT…yet again fixed cost on not really dependent on Size.

On top of that the Irish banks have seen little investment in the past 10-15 years besides regulatory compliance and have a poor customer offering as a result which allows fintech compete and take over profitable parts of the business such as FX etc. If they don’t invest or acquire fintech companies and get up to speed it is questionable will they still exist in 10 years.

Unless a bank is a certain size it will struggle to remain profitable even if they get a return from the central bank. If they struggle to write enough new loans which all Irish banks have difficulty doing as more loans are paid off than draw down for the past few years the return on equity is going to be low and it makes perfect sense to shut up shop and release the capital and use it else where they can get a better return.

Saying they get a return from a central bank as opposed to earning a return else where is the equivalent of someone parking 10m Euro in a current account and getting a minimal return instead of investing the money elsewhere and getting a good return. It didn’t Matter much when rates were negative/low as it was difficult to get a return anywhere but with rising rates it’s more important than ever.

5 Beds 2 Baths 113sqm = 195k