First Quarter 2009 Banking Sector Activity4th June 2009
Total deposits held with Guernsey banks at the end of March 2009 decreased in sterling terms by £14.1 billion from the end of December 2008 level of £157.0 billion down to £142.9 billion, representing a 9% decrease over the quarter. Total assets and liabilities decreased by £14.2 billion to £164.9 billion, an 8% decrease. Total deposits still remain some 10.3% above the level of March 2008 and total assets and liabilities are 13.7% higher than the level at the end of the first quarter of 2008.
The principal reason for the large fall in deposits was the 14.5% contraction in Swiss fiduciary deposits in the quarter, down from the peak level of £71.8 billion in December 2008 to £61.4 billion. The declining attractiveness of this product in a low interest rate environment continued into 2009 with most of the decline happening in the first two months of the quarter and a much slower decrease at the end of the quarter. Swiss fiduciary deposits still represent 43.1% of all deposits with 10 banks in Guernsey currently active in this area of business.
Overall the effect of exchange rate movements in the quarter was neutral. Sterling weakened against the US Dollar but this was largely counter balanced by its strengthening against the Euro and Swiss Franc. Deposit business in US Dollars was down almost 11.6%, Swiss Francs by 6.7%, Euros by 4.1% and Sterling by 12.2%.
The overall currency mix showed some changes in the proportion of deposits in individual currencies with Euros increasing slightly to 28.1% but the US Dollar proportion fell to 44.5%, Sterling deposits fell to 21.2% and Swiss Franc deposits fell slightly to 3.5%.
No new banking licences were issued during the fourth quarter but two were surrendered. In February following a decline in its economic viability Credit Europe Bank (Suisse) S.A. – Guernsey Branch surrendered its licence. The remaining assets and liabilities were transferred back to group. In March, the Bank of Ireland (I.O.M.) Limited - Guernsey Branch surrendered its licence, following a review of its operations and its business was transferred back to the head office in the Isle of Man. Both transfers are reflected in the lower level of deposits.
A table is available here showing the level of the deposits and the number of licensed institutions since 1996.
Philip Marr, Director of Banking commented:
“The Banking figures expressed in sterling have come down from the peaks seen in the fourth quarter of 2008 having reached those record levels in part as a result of the sharp weakening of sterling exchange rates in the aftermath of the financial crisis last year. The first quarter has seen more settled foreign exchange markets so the effect on volumes of the continued decline in attractiveness of Swiss fiduciary deposits has been more evident. We had already identified this trend emerging last quarter in the base currency figures as overseas private client investors responded to the impact of ultra low interest rates. However some comfort can be taken from our analysis of deposit movements within the quarter which indicates that the steepest decline in deposits was in the first two months of the quarter and that movements in the last month were more benign.”