Domestic banks such as Irish Nationwide and Anglo Irish are losing significant levels of deposits raised in the Isle of Man, forcing both lenders to dramatically slim down their offshore operations.

In May, British website Moneyfacts rated Irish Nationwide and Anglo Irish, with rates of 4.25% and 3.30% respectively, as the biggest payers to offshore sterling savers across almost all instant access and term type accounts.

However, last week Irish Nationwide offered rates of just 1.75% and 2.25% for a range of term- and fixed-rate bonds on the island. Anglo offered its highest rate of up to 3.55% for 12-month deposits.

Irish banks have dropped out of the British best buys lists as the lenders cut their savings rates on the Isle of Man.

"Basically, some [Irish] banks have lost deposits, some by not so much, but certainly they are not growing them," a senior source said. A worsening perception of Irish banks and recent government references to Ireland possibly needing the IMF has led to some Irish banks continuing to lose large chunks of their deposit bases on the Isle of Man.

For years, the Isle of Man deposits contributed significantly to the funding of Irish Nationwide and Anglo Irish, in particular.

A KPMG survey showed that, of 25 banks in 2007, Anglo had the third largest asset base after Barclays and RBS Coutts on the Isle of Man. Company records also showed that the Isle of Man once accounted for 10% of Irish Nationwide group's deposits.

Irish Nationwide and Anglo, as recently as early summer, aggressively competed for savings by offering 4% to sterling savers -- the highest rates for sterling deposits in the world, according to price comparison websites. Now, only Anglo continues to compete in some categories of saving products, while Irish Nationwide has slashed its rates on the island.

"Many Irish banks are still paying high rates, but not as high as they were paying. Essentially now the Irish banks on the island are in a very different position and present different problems. Irish banks are perceived abroad as facing a difficult time," said the senior source.