Monday, January 6, 2014

Inflow into State Savings Schemes continues

Ireland may have run into funding difficulties elsewhere over the past few years by the State Savings Schemes run by the NTMA continue to attract a large net inflow of funds.

State Savings Net Flows

During the ‘boom’ years there was never more than a net inflow of a couple of hundred million into the State Savings Schemes and at the end in 2007 there was even a small net outflow.  However, since then the money has flowed in with average net inflows over the past six years of almost €2 billion.  The 2013 net inflow was €2.028 billion. 

These receipts have seen the total amount in the schemes soar from €4 billion in 2007 to almost €16 billion (10% of GDP) at the end of 2013.

State Savings Total

The amounts in these schemes form part of the General Government Debt and now make up around 8 percent of the overall GGB.  We just have the total net inflow across all the schemes for in 2013 but the NTMA 2012 Annual Report gives a breakdown by scheme as it stood 12 months ago.

NTMA State Savings Products

At the end of 2012 the total in State Savings Schemes was €13.8 billion.  The table above includes “Deposits Accounts” which are the monies placed on deposit with the Post Office Savings Bank (POSB) which are managed by the NTMA.  We do not know what happened to these deposits in 2013 but if they stayed steady the equivalent table for End-2013 will show a total of €18.3 billion (given the €2 billion increase for the NTMA’s schemes).

Before Christmas the NTMA announced a reduction in the interest paid on its products and the rates on new issues of the savings bonds/certs are now almost all below 2 percent.  For Prize Bonds the amount distributed is now equal to 1.6 percent of the balance.  The interest paid on Post Offices savings is not 0.5 percent.

This funding, which wasn’t taken as given at the start of the EU/IMF programme in late 2010, is one reason the NTMA have been able to accumulate a large cash reserve at the conclusion of the EU/IMF funding.  Over the past three years a net €5.5 billion has flowed into the NTMA’s schemes (excluding POSB deposits).  The total cash reserve stood at around €20 billion at the end of the year, excluding the €3.7 billion of Housing Finance Agency notes held by the NTMA.

NTMA Cash Resources

A question sometimes arises as to what the NTMA is doing with this cash mountain.  Usually, it is kept in the Exchequer Account with the Central Bank but as can be seen above the balance between the money in the Exchequer Account and the row labelled Other has reversed.  Over the past 12 months the amount in the Exchequer Account has declined by €10.8 billion while the amount in Other accounts has increased by almost the same amount.

The money has been moved out of the Exchequer Account and put on deposit with the ‘Covered’ Banks (AIB/EBS, BOI and PTSB). [They are no longer ‘covered’ by a guarantee but we’ll stick with the nomenclature.]

Government Deposits in Covered Banks

The spike in 2011 was because the money used to recapitalise the banks after the PCAR exercise was briefly put into the banks as deposits before the recapitalisation was completed.  In general, we can see that government deposits in the banks have been around €3 billion but that this rose rapidly in the early part of 2013 and now approaches €15 billion.  These deposits are a nice, though somewhat artificial, fillip to the deposit figures of the ‘covered’ banks.

It is possible that one reason why there is €16 billion of money in the State Savings Schemes is a reluctance of people to put money on deposit with our delinquent banks while the banks themselves have frequently complained about the rates offered by the NTMA.  One could argue that the NTMA have given the deposits to the banks anyway!

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