Banks cut international exposure by almost €100bn

RETRENCHING Irish banks and building societies have reduced their exposure to other countries from a peak of €292 billion in 2008 to €194 billion at the end of last year.

New figures from the Central Bank show the institutions’ international exposure is now back at levels last seen five years ago. In the final three months of last year, “foreign claims” of domestic banks declined by 6.5 per cent, falling by €13.6 billion to €194 billion.

The biggest drop was accounted for by the German claim, where exposure declined by 17 per cent, or €1 billion, to €4.9 billion.

The UK accounted for more than half – 59 per cent – of Irish institutions’ international claims, although ownership of banks in the North accounts for a large portion of this. Over the last quarter of 2011, UK exposure fell back by 4.5 per cent, or €5.3 billion, to €113.7 billion.

Exposure to Poland was substantial at 7 per cent of the total at the end of last year, reflecting AIB’s interest in Polish bank, WBK, which has been sold to Santander.

The US had 12 per cent of all foreign claims at the end of December, following a €1 billion decline over the quarter.

Some 81 per cent of the total international exposure of Irish banks and building societies relates to the private sector, with other banks representing 15 per cent and foreign sovereign debt accounting for the smallest portion, at 4 per cent.

Banks sharply reduced their sovereign debt exposure over the quarter, cutting it from an already modest €10.1 billion to €8.2 billion. A notable decline came in relation to German debt, where exposure fell from €1.4 billion to just shy of €750 million over the quarter. Portuguese debt, which is in the spotlight this week, represented an exposure of €246 million at the end of the year, steady on the previous quarter.

The Central Bank defines domestic banks as those guaranteed by the State: AIB, Anglo, Bank of Ireland, EBS, Irish Life & Permanent and Irish Nationwide.

When other banks operating in Ireland were included, the decline in the final quarter was substantially more stark. Quoting figures due for release by the Bank for International Settlements, the Central Bank said a reduction of 28 per cent, or €118 billion, had been recorded in the quarter.

There were also notable changes in the sectoral distribution of the exposure when this wider group was included in the data. This can be explained, the bank said, by the accounting treatment of large transactions involving IFSC banks, as well as a German government-sponsored asset purchase vehicle. These caused a large increase in exposure to the German public sector.