It remains one of the big secrets of Irish banking. The Irish banks boosted the amount of lending at home and abroad, and smaller banks such as Anglo Irish and Irish Nationwide aggressively chased deposits offshore to help fund the expansion of the loan books. But Anglo Irish, 100% owned by Irish taxpayers, and Irish Nationwide, which depends for its survival on the state guarantee, appear to need the sterling deposits on the Isle of Man more than ever.

The Irish banks, which offer the highest deposit rates to sterling savers in the world, appear to be signalling that they face increasing pressure to hold onto a significant source of funding. If they were to lose out on the Isle of Man, the pressure on the two banks could grow even more.

Last week, British price comparison websites featured the Irish banks as the biggest payers for most types of offshore saver. On its 'no notice' category, Moneyfacts ranked Irish Nationwide and Anglo Irish, with rates of 4.25% and 3.30%, as the biggest payers to offshore sterling savers. This comes at a time when British banks in general are paying historically low rates to savers.

All six products from Anglo Irish and Irish Nationwide, with rates ranging from 4.2% to 4.5%, dominated Moneyfacts' 'fixed rate' sterling offshore savers' category. On 'notice accounts' of between 30-90 days, Irish Nationwide and Anglo Irish again beat worldwide competition by offering rates up to 4% compared with the next best rates ranging between 2.75% and 3% paid out by Alliance & Leicester and Bradford & Bingley.

Little noticed, Anglo Irish grew its deposit base on the Isle of Man to substantial levels. According to company accounts filed in December in the Isle of Man, Anglo Irish International Plc, the bank's main company there, had substantial £4.17bn (€4.6bn) deposits. However, a large part of that deposit base can be withdrawn at very short notice and is therefore vulnerable to adverse media reports and to rating downgrades.

By any measure, the size of Anglo's deposit base on the Isle of Man is significant. One small Irish bank, in competition against Barclays, HSBC, Lloyds TSB and RBS Coutts, accounts for up to one-tenth of all deposits on the island. Anglo's deposits on the island also account for about a tenth of all €51bn in deposits the group held at the end of its financial year in September.

A survey by consultants KPMG showed that in 2007 Anglo Irish had the largest amount (after Barclays and RBS Coutts) of assets of 25 banks on the island. Bank of Ireland, with £2.75bn, was the sixth largest.

Latest accounts filed show that Irish Nationwide (IOM) Limited also had a substantial operation on the island. At the end of 2007, Irish Nationwide had £1.34bn in deposits on the Isle of Man, accounting at the time for up to a fifth of all its customer deposits, or about a tenth of all deposits, when bank deposits with the group are included. Employing 45 people, Anglo also had one of the largest physical presences on the island.

But the Sunday Tribune has learned that the Irish offshore banks, following recent downgrades in their creditworthiness, face huge challenges in holding onto those offshore deposits.

"A downgrade in bank ratings hits the banks in many ways," says an industry expert with 30 years experience of Isle of Man banking. "Ex-pat workers, who move around the world, instruct their banks to invest some of their pension money in other banks offering the best interest rates. Irish Nationwide has always competed for that business. When your rating is downgraded, you start to lose that business," says the expert.

Media reports in the British press highlighting difficulties for Irish banks also affect the amount of money the Irish banks will raise offshore. They are then forced to offer higher rates to counteract the negative publicity.

The relatively large deposit trove raised by Irish banks offshore can, during times of pressure, become a weakness. Experts say that an average customer could have as much as £100,000 deposited in an Irish offshore bank, significantly more than they would have deposited in Ireland. It would take only a few hundred savers to withdraw their cash for any bank to lose hundreds of millions in deposits.

Many experts say that a bank paying out on sterling savers rates of 3.75% or 4.75% cannot make money unless the rest of the deposit base back in Ireland is subsiding those rates.

Senior sources on the island say that the Irish banks on the Isle of Man have suffered following the downgrades of their parent groups. Lost offshore deposits may yet become another headache for Anglo Irish and Irish Nationwide and the Irish taxpayer.

The Battle For Savers

Harry Slowey, a director at savings adviser Irish Deposits, says that Irish banks are paying out sky-high interest rates for sterling savers offshore because the battle between banks for savers' money is hotting up. "There is a finite of money out there in the deposit market," says Slowey. But how can Irish banks make money, paying out up to 4.25% when the English base rate is only 0.5%? The focus is on retaining as much as the deposit base as possible, says Slowey. "The money is being paid out on new deposits and not on the whole deposit base." The banks benefit because savers are still surprisingly reluctant to switch banks.