THE COUNTRY’S BIGGEST retail bank, AIB, has announced that it has seen €13bn in deposits taken off its books since the start of 2010, as depositors fear that the government bank guarantee is not enough to safeguard their cash.

The announcement was made in a trading update issued by the bank this lunchtime, and attributed the outflow to the withdrawal of deposits from corporate clients and other financial institutions.

Deposits, it said, were the largest source of funding for the bank’s operations, accounting for 50% of the bank’s total funding.

The volume of loans issued – once the effects of transfers to the National Asset Management Agency – by the bank had fallen by 6% in the nine months to September 30, but gross customer loans had remained stable.

The bank has had to cut 600 staff in the last twelve months as a result of its troubled climate – a move it said would be a “key part of our plans to improve the future performance of the bank”.

Liquidity problems

As a result of the sudden drop in deposits on the bank’s books, Reuters reports, the bank’s board of directors had decided to halt the ongoing sale of the AIB Group’s assets – which could include the 22.49% stake in US lender M&T Bank.

Ireland’s Financial Regulator gave AIB a capital target of €7.4bn to be raised by the end of the year – an amount independent of the €3bn extra pumped in by the government in September – which it now seems unlikely the bank will achieve.

Though it sold its Polish bank Bank Zachodni WBK to Santander for €3.1bn in September, discussions to see the M&T stake taken over by Santander as part of a merger with its own retail unit Sovereign fell through – forcing the bank to attempt selling them on the open market.

Earlier this month AIB said it was pausing the sale of its UK operations after it failed to receive bids within its desired range.

RTÉ reports that the bank will therefore probably require further underwriting from the national pension reserve fund – forcing the State to take an even larger stake in the bank than previously anticipated.

The fall in deposits – which follow the declaration last week by Bank of Ireland that it had shed €10bn in deposits in the third quarter alone – further underlines the gravity of the liquidity crisis facing Ireland’s banks, while the EU and IMF begin full bailout negotiations with the government.