Ireland set for €8bn more ECB support

IRELAND is in line for €8bn of further borrowing support after the
European Central Bank (ECB) signalled it would expand the Pandemic
Emergency Purchase Programme (PEPP) in December.

The predicted
purchase of an additional €8bn in Irish Government debt next year is on
top of the €10bn expected to be purchased by June next year under
current plans. The ECB already bought €11bn of Irish debt in the year to

Bond buying by the ECB is intended to bring down the cost of borrowing for national governments.

“Most economists expect an expansion of the PEPP scheme by circa
€500bn to be announced in December, also with an extension to end-2021,”
said Conall MacCoille, chief economist at Davy. “A €500bn expansion of
the PEPP to €1.85trn would imply a further €8bn of ECB purchases of
Irish debt in 2021,” he added.

Yesterday, ECB
president Christine Lagarde said there is “little doubt” that policy
makers will agree on a new package of monetary stimulus in December as
coronavirus infections and renewed lockdowns threaten a double-dip

The comment to
reporters, after policy makers agreed to keep their stimulus settings
unchanged for now, highlights how the resurgent disease has derailed the
region’s upturn.

“The euro area
economic recovery is losing momentum more rapidly than expected,” Ms
Lagarde said. “We agreed that it was necessary to take action and
therefore to recalibrate our instruments at our next Governing Council

The euro dropped to the low of the day and European stocks climbed on the remark.

Officials decided to hold off on changes for now, keeping the
pandemic bond-buying programme at €1.35trn. But the president signalled
that the next step could be broader than just ramping up that programme,
saying staff are already working on policy options, and “I’m not ruling
out any of the tools that we have”.

“The market will
be expecting quite a lot for December,” said Anatoli Annenkov, an
economist at Societe Generale, adding that yesterday’s message “was very
clear, unusually clear in pre-announcing action, which is not normally
what the ECB does”.

While policy
settings might not change until December, Ms Lagarde pledged to use the
full flexibility of the bond programme, saying that “in the meantime we
are not going to just stand still”. That signals purchases could be
accelerated. Only half the programme has so far been used.

She also suggested policy makers could take further steps in the interim if needed, arguing that “if we have to meet on short notice, we will do so. We stand ready for that”.

New coronavirus lockdowns announced by Germany and France in the past
48 hours have highlighted how the euro area’s outlook has darkened
considerably since the ECB’s September meeting. The summer rebound has
given way to a possible double-dip recession, forcing governments to
provide more aid and pressuring the central bank to keep borrowing costs

Even before the
new restrictions, euro area services were shrinking, and confidence
measures have slipped. That’s put pressure on both the ECB and
governments to ramp up support and protect millions of jobs and

Ms Lagarde stressed the need for regional fiscal aid to be implemented and delivered, rather than just planned. That’s after EU governments have been stuck in negotiations with the European Parliament over outstanding details of the region’s recovery fund, raising doubts about whether the first slice of funds can be distributed in the first half of 2021 as scheduled.

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Mortgage holders leaving thousands of euro on the table by failing to switch home loan providers – CBI research

Mortgage holders are leaving thousands of euro on the table by
failing to switch home loan providers, according to new research by the
Central Bank of Ireland (CBI).

in five eligible mortgages could save more than €1,000 in the first
year after switching to a cheaper lender and more than €10,000 over the
remaining term of the loan, the research found.

Yet fewer than
3pc of borrowers switched providers in the second half of 2019,
suggesting there are significant barriers to moving easily from one
lender to another.

The findings were published today in a new economic letter from the CBI that included a detailed review of switching activity in the Irish mortgage market.

The report’s authors found that, although switching activity among
private dwelling home (PDH) borrowers had increased, the number of
mortgage switchers is still low relative to the pool of those eligible.

They said the low
appetite among borrowers to move to a cheaper mortgage persisted
despite falling interest rates and policy initiatives designed to help

Instead, eligible
borrowers tended to stay with their lenders, even though 72pc could
save up to one-tenth of their annual repayment costs if they moved to a
cheaper provider.

The researchers
found that first-time buyers and those with mortgages dating from the
peak years of the housing bubble were the least likely to take advantage
of better deals. They suggested that low levels of financial literacy
and education could be factors behind the inertia.

Irish banks have
on average some of the highest mortgage interest rates in the eurozone,
although prices have been falling in line with loose monetary policy
from the European Central Bank.

The research classified an eligible borrower as someone with a performing mortgage and no arrears on a variable rate mortgage or a fixed rate product with less than 12 months remaining on the term. The outstanding balance had to be at least €30,000 and the loan-to-value ratio below 90pc.

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AIB says Q3 performance more resilient than expected

AIB said its performance in the third quarter was more resilient than
it had expected with positive momentum reported on a quarterly basis.

In a trading update for the three months to the end of September, AIB said it remained comfortable with its full year guidance. 

AIB said it granted about 66,000 payment breaks to its customers since the outbreak of Covid-19. 

By October 16, AIB said that 3% of those customers remained on their
first payment break, while 60% rolled off their first break without
availing of a second payment break. 

Over 90% have returned to normalised payment schedules.

It also said that 37% rolled on to their second payment break of which 23% remain on a break and 14% rolled off the break.

AIB said it is in “continual contact” with customers to understand if
any further support measures may be required beyond this point. 

The country’s largest mortgage lender said new lending was down 18%
from a year earlier after a 27% fall in the first half. Net interest
income for the nine months to September 30 was down 9%.

Rival Bank of Ireland also reported a better-than-expected performance this week, with its net interest income down just 2%. 

But both lenders remained cautious with AIB predicting that recently
reimposed Covid-19 curbs would see the Irish economy contract again in
the fourth quarter.

In today’s trading update, the bank said its total income for the nine months to September fell by 11%. 

“While there is a high level of uncertainty as we face into the
fourth quarter, total income has shown a level of resilience better than
that anticipated at the onset of the Covid-19 crisis earlier this
year,” AIB said.

AIB’s group chief executive Colin Hunt said that bank performed well
in the third quarter and, generally speaking, economic indicators are
proving more resilient than anticipated earlier this year. 

“However, we must acknowledge and continue to be vigilant to the
significant uncertainties which persist both domestically and
internationally,” Colin Hunt said. 

“Our strong capital
position enables us to deliver on our priorities to support the Irish
economy, work with our customers as they deal with the challenges of
Covid-19 and Brexit, support our colleagues and play our part in the
communities in which we serve,” he said. 

“We are actively working to best position the group to respond to the
challenges and opportunities which will arise as the world emerges from
this crisis,” he added.

AIB said it took an additional €100m impairment charge and reiterated
that the €1.3 billion it has put aside to date in 2020 would make up a
significant majority of its provisions for the year.

The bank’s core Tier 1 capital ratio – a key measure of financial strength – rose to 16.1% from 15.6% at the end of June, the highest of any Irish lender.

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Sterling could drop to 97p against the euro if no trade deal struck

Small and medium sized companies are generally showing signs of
resilience in the current challenged trading environment, but there are
concerns for particular sectors.

That is according to a treasury specialist who works with businesses
on managing capital, cash flow and currency moves among other things.

John Finn, Managing Director of Treasury Solutions, said the bulk of
the concern was sectoral driven with hospitality and hotels in a
particularly difficult position.

However, he said the twin threat of the pandemic and the possibility
of a no trade deal with the EU when the UK leaves the single market and
customs union in 65 days time could pose difficulties to other sectors.

“Food processing and manufacturing have done fine in the sense that
people are still eating, but they’ll get hammered if they’re exporting
to the UK and there’s a hard Brexit,” John Finn said.

He noted that sterling had been trading in a reasonably narrow range against the euro of late with currency traders appearing to believe that a trade deal of some kind will eventually be struck.

“If that happens, you’d probably expect sterling back at 87-88 pence
(to the euro). That’s what exporters are hoping for. If there’s no deal,
95-97 pence would be inevitable fairly quickly so that’s the risk. On
balance, I’d say exporters are probably hoping more than hedging that
they’ve got it right,” Mr Finn said.

He said it was too early to say if the banks were dealing with
customers on a “case by case’”basis as they had promised after the
pandemic payment breaks ended.

However, he believed that the bigger concern for many SMEs was landlords more so than the banks.

“There’s a general sense that the rent breaks were fine and there’s a sense that no landlord wants to move first on moving somebody but if you get a couple moving, you could get a lot of them moving. In the short term, there’s more concern about rents than bank loans,” he added.

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Retail sales rise before introduction of tighter restrictions

Retail sales rose by 1.5 per cent
in September boosted by car and DIY sales but several sectors, including
bars, were still well behind pre-pandemic levels.

The latest figures from the Central Statistics Office (CSO) also predate the introduction of Level 5 restrictions, which has resulted in the closure of all non-essential retail.

This is expected to lead to another major downturn in sales in October and November.

On an annual basis, retail volumes were 9.7 per cent higher in September compared with September 2019.

motor sales are excluded, the volume of retail sales was up by 1 per
cent in September and 7.4 per cent on an annual basis.

Some sectors, particularly in the hospitality sector, have been slow to recover.

sales remain the hardest hit and were down 49 per cent year on year in
September, while sales of books, newspapers and stationery were down
11.6 per cent.

numbers of people working from home also triggered a 10 per cent drop
in fuel sales, while sales in department stores were marginally down on
last year.

contrast, the annual volume of retail sales was higher in hardware,
paint and glass (+31.3 per cent), electrical goods (+29.6 per cent),
other retail, which includes supermarkets (+23.9 per cent).

largest monthly volume increases were in car sales (+5.7 per cent),
hardware, paints and glass (+4.2 per cent) and clothing, footwear and
textiles (+3.1 per cent).

the volume of in-person shopping increased with stores reopening, the
proportion of total retail sales transacted online has fallen from the
high of 15.3 per cent recorded in April to 4.3 per cent in September,
the CSO said.

However, the CSO’s figures do not cover the full extent of online sales here.

Contactless payments

figures from the Banking and Payments Federation Ireland (BPFI)
suggested contactless payments hit a record high in third-quarter of
2020 with more than 182 million payments valued at almost €2.9 billion.

a significant surge in contactless payments in recent months triggered
largely by the Covid-19 pandemic, the figures show the number of
contactless payments rose by 36 per cent year-on-year in the three-month
period with the value of those payments up 77 per cent during the same

“And while activity did see a slight dip during September, there were two million contactless payments per day during the month of September, unchanged from August, with €31.1 million spent per day, down from €31.9 million a month earlier,” it said.

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Rising infection numbers drag global stocks lower

Stocks tumbled in the US and Europe as rising coronavirus infections
and tougher lockdowns added to worries about the economic hit from the

The S&P 500
Index fell more than 2.5pc, headed for the biggest drop in seven weeks,
amid a surge in Covid-19 hospitalisations, especially in the Midwest.

Energy shares
sank with oil prices, and technology stocks were also among the worst
performers. The VIX Index, a measure of expected US equity volatility,
climbed to the highest level since June.

Boeing slumped to
a one-month low as it announced plans for more job cuts. Microsoft was
among the biggest drags on the S&P500 as investors focused on a
forecast that fell short of analysts’ highest projections, looking past a
decisively upbeat profit and sales report. General Electric gained
after reporting a surprise profit.

The Stoxx Europe
600 Index fell to a five-month low, losing more than 3pc at one point
after German Chancellor Angela Merkel reached a deal for a one-month
partial lockdown to curb the spread of the virus. Auto and real-estate
shares saw the steepest declines.

Markets in the US
and Europe have retreated sharply this week as virus cases surge and
American lawmakers fail to agree on an economic aid package before the
November 3 election. Analysts are also warning about increased
volatility in markets ahead of the presidential vote and in its
aftermath, with some saying that a contested outcome is still a

“As you see cases
rise and reduced activity across the country, that directly translates
into an impact on GDP growth,” said Phil Toews, chief executive officer
of asset manager Toews Corp. “The lack of a fiscal stimulus means people
who were unemployed who were able to continue to purchase things are no
longer going to be able to do that.”

Elsewhere, oil
fell sharply on concern lockdowns will sap demand. Bitcoin headed to its
biggest drop in almost two months after reaching the highest since
January 2018.

In Asia, stocks fared better. The MSCI Asia Pacific Index edged lower on Wednesday, and markets in South Korea and Shanghai posted modest gains. In China, indicators tracked by Bloomberg showed the recovery continued to display mixed signals while remaining broadly steady in Oc

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Disposable income in Ireland rose 28% between 2012 and 2019

The average disposable income of
Irish households rose by nearly 30 per cent between the financial crisis
and last year, according to the Central Statistics Office (CSO).

agency’s latest Survey on Income and Living Conditions shows the
average after-tax income of households here stood at €53,118 in 2019.

is 28.3 per cent higher than at the low point of the financial crisis
in 2012, when it was €41,399 and 8 per cent higher than the boom-time
high of €49,043 recorded in 2008.

The CSO figures reflect the rapid growth in overall employment between 2012 and 2019 rather than direct wage increases.

they predate the current coronavirus crisis, which has resulted in a
spike in unemployment and a compression in household income.

with three or more people at work had the highest nominal median
household disposable income (€95,613) last year, compared with €24,173
for households with no one at work.

survey also revealed a strong correlation between disposable income and
education. Where the head of household had an educational attainment of
primary level or below, the nominal median household disposable income
was €26,527, compared with €66,811 for those with a third-level degree
or above.

The survey also provided an insight into poverty rates here.

classified as at risk of poverty – in other words the percentage whose
income was less than 60 per cent of the national median – was 12.8 per
cent last year, down from 14 per cent in 2018.

Poverty risk

most at risk of poverty were people who were not at work due to illness
or disability (37.5 per cent) and those who were unemployed (35.4 per

compares with an “at risk of poverty” rate of 4.6 per cent for those
who described their principal economic status as “at work”.

consistent poverty rate, which includes people defined as being both at
risk of poverty and also experiencing enforced deprivation, was 5.5 per
cent, compared with 5.6 per cent in 2018. The change was not considered
statistically significant by the CSO.

in seven (13.5 per cent) of those living in rented accommodation were
defined as living in consistent poverty, compared with one in 50 (1.8
per cent) of those living in owner-occupied accommodation, the CSO’s
study found.

Healy, director of Social Justice Ireland, said the figures indicated
that 637,107 people are living in poverty in Ireland. “Of this number,
around 193,681 are children under the age of 18,” he said.

“Despite wage growth, increased employment and very high rates of economic growth last year, these figures show that a significant proportion of the population is still living in very difficult circumstances,” he said. “We expect that the impact of Covid-19 will simply make this situation worse.”

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Over 11,000 customer accounts with Bank of Ireland remain on payment breaks

Just over 11,000 Irish customer accounts with Bank of Ireland are
currently on payment breaks, as Covid-19 continues to impact economic

The total value of these loans is €1.9bn.

Of these, 6,400 are mortgage accounts.

A further 2,800 belong to small and medium businesses, according to a third quarter update from the bank.

Customer accounts – that are
unrelated to mortgages – make up 1,900 of the loans currently
experiencing a payment break in Ireland.

The number of accounts on payment breaks here makes up 5pc of the bank’s Irish portfolio.

In the UK, where the bank also has a
presence, 8,900 accounts are on a payment break, the majority of which
are also mortgage accounts.

In total there are around 20,000
outstanding payment breaks in Ireland and the UK, down considerably on
the 106,000 initial three-month payment breaks approved by the bank.

For those customers that have come
off the breaks, the “significant majority” have resumed principal and
interest repayments, Bank of Ireland said.

The number of customers requiring additional support is in-line with its expectations.

Non-performing loans (NPLs) have remained “broadly stable” since the end of June, it added.

Bank of Ireland had NPLs of €4.5bn at the end of September, equivalent to an NPL ratio of 5.8pc.

The bank said it experienced higher
activity levels in the three months to September 30 when compared to
prior quarter, with new lending up 59pc.

Mortgage drawdowns in Ireland increased 30pc compared to the second quarter of this year.

It also experienced improved business activity in its UK business.

However, overall new lending of €9bn to September 30, was 25pc lower compared to the prior year.

Chief executive Francesca McDonagh
warned that recently announced Covid-19 restrictions by the Irish and UK
governments combined with Brexit “present continued uncertainty.”

“Against this backdrop, our capital position remains strong,” she added.

The bank’s voluntary redundancy
scheme, which recently concluded, will result in around 1,450 full-time
employees leaving the company, starting this year and continuing over
the course of 2021.

When completed the financial impact
is a circa €114m reduction in annual staff costs, equivalent to 14pc of
September’s annualised staff costs.

The bank is incurring a €169m restructuring charge because of the scheme.

Net interest income – a key barometer
of a bank’s profitability – was 2pc lower in the nine months to
September versus the prior year.

Meanwhile, business income was down 19pc over the nine months compared to the corresponding period last year.

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Ireland ranked top in Europe for startup financing

Ireland is one of the best places in Europe for young companies to
source investment, list on the stock market and access global capital,
according to a new report by the Association of Financial Markets in
Europe (AFME).

The report, which is an annual benchmarking of key performance indicators for European capital markets, shows that Ireland is the top-ranked country in the EU+UK for startups and non-listed companies to access risk capital.

The report measures the participation of venture capital and private
equity investors against the availability and amount of bank lending for
SMEs. In the first half of 2020, Ireland had €300m of risk capital
investment versus €1.6bn in SME lending.

Ireland is also ranked second for
companies raising finance on the public markets and third for global
capital markets integration, indicating access to deep pools of
investment beyond Irish shores, according to the report.

However, the report warned of continued over-dependence by SMEs on bank finance, which dwarfs financing from risk capital investment by a ratio of 38-to-1. Bank lending to EU SMEs reached €573bn in the first half of the year compared to €14.1bn from venture capital, private equity, business angels and crowdfunding.

“European capital markets were resilient in 2020 with unprecedented
levels of bond market issuance including continuing leadership in
sustainable bonds,” said Adam Farkas, chief executive of AFME. “However,
a dramatic increase in bank loans means that Europe remains highly
dependent on bank lending.”

The report found that market
financing has remained resilient despite Covid, with companies issuing
unprecedented amounts of fixed income securities as the ECB stepped in
to support the market.

However, AFME noted that Europe’s equities market is “undersized”, which drives SMEs to rely on bank loans, restricting their opportunities to grow.

Ireland’s capital investment ranking was helped by a 9pc decrease in new gross bank lending for SMEs in the first half of the year rather than an increase in other capital investment. By contrast, bank lending for small businesses increased by an average of 19pc across the rest of the EU during the same period.

The report also criticised Ireland for its lack of sustainable securities issuance this year, ranking it last out of the 28 countries surveyed.

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Q3 mortgage approvals up by a third as mortgage market recovery continues

There was a significant increase in mortgage approvals in September,
but the value of mortgages drawn down in the latest quarter was still
down significantly on the same period last year.

That is according to the latest figures from the Banking and Payments
Federation Ireland, which show that first time buyers still account for
the bulk of activity in the mortgage market.

4,621 mortgages were approved in September, an increase of around a fifth on a monthly and yearly basis.

57% of approvals in the month were accounted for by first time buyers with mover-purchasers accounting for almost 26%.

The value of mortgages approved stood at €1.12 billion, an increase of 18.5% from August.

Compared to September last year, the value of approvals had risen by over a third.

September approvals accounted for over half of total approvals – in
volume and value terms – for the entire third quarter, the figures show.

8,220 new mortgages to the value of €1.957 billion were drawn down by
borrowers during the three month period to the end of September.

When compared to the previous three month period, drawdowns were up over a fifth in volume and just over a third in value terms.

However, it amounts to a fall of just over 30% in volume and 25.8% in
value on the corresponding third quarter of last year, underlining the
extent to which the mortgage market is still recovering from the
pandemic related slowdown in activity.

Brian Hayes, CEO of the Banking and Payments Federation Ireland, said
the figures pointed to good momentum in the market in September in
particular, but he said there were reasons to be cautious.

“The increased activity in mortgage approvals we’ve seen in September
is encouraging and provides a much improved pipeline for drawdowns in
the months ahead,” he said.

“It remains to be seen however what impact the latest Covid-19 public health measures with restricted economic activity is likely to have on prospective homebuyers and the mortgage market,” he added.

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