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�?�200m SSIA windfall for banks
John Mulligan



IRISH banks could reap more than �?�200m in profits as maturing SSIAs are rolled into savings products and property investment.

The projected profits, estimated last week by Credit Suisse, will come on top of the significant returns the banks have already made from the roughly 1.1 million customers who stuffed money into the government saving scheme, leaving their money on deposit or invested in stocks.

The bank also estimates that SSIAs could generate up to Euro14bn in new mortgage lending, representing up to 12% of the overall mortgage stock, but warns that the earnings impact of SSIA maturities for Irish banks will be "less significant than the market is factoring in".

An estimated 60% of all SSIAs are expected to mature in April, and there had been speculation that these savers would be the most likely to splash out on purchases such as cars and holidays. This was based on the premise that savers who were among the last to invest in the scheme would comprise those not predisposed towards seeking longer-term returns.

Credit Suisse estimates that roughly 50% of SSIA money will be rolled into products such as pensions and long-term savings accounts. The institution believes that would generate a profit pool of Euro90m on the reinvestment of SSIAs, netting Bank of Ireland, for instance, a pre-tax profit of Euro18m.

Credit Suisse also estimates that 20% to 30% of SSIAs will be invested in the housing market in the form of home improvements or new home purchases, but stresses that, with the average SSIA worth Euro14,000, savers would need substantial additional resources to achieve a 5% or 10% deposit. Most of the money directed to housing will be spent on home improvements, it says, with just 5% being spent on home purchases.

Assuming Euro750m is reinvested in home buying, Credit Suisse says that loan-to-value levels of between 90% and 95% will see an additional Euro7bn to Euro14bn of mortgage lending on the back of SSIAs. In profitability terms, however, it says the impact will be less striking, with the new mortgage lending generating between Euro50m and Euro100m in profits for the banks.

Meanwhile, the Swiss financial giant is relatively downbeat on the prospects for Irish banks in 2007, noting that a "sharp fall" in planning permissions in the last quarter of 2006 is likely to feed through to a "lower level of residential construction activity in 2007 which in turn should drive lower corporate growth, where construction has been one of the key drivers".




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