Bank deposits in Guernsey fell by 3.5% in the third quarter of 2009 and 11.8% from the same time a year earlier, the Guernsey Financial Services Commission reported, citing a significant decline in Swiss fiduciary deposits during the period.
However, other interbank deposits in currency were also down in the quarter, the GFSC said.
Swiss fiduciary deposits are a tax-efficient product offered by banks that enable Swiss taxpayers to take advantage of European trust arrangements. But interest in them has fallen as a result of the “low interest rate environment,” the GFSC said, noting that Swiss fiduciary deposits alone slid by 5% during the third quarter, to £44.8bn.
Swiss fiduciary deposits are currently handled by 10 Guernsey banks, and represent 37.3% of the island’s total bank deposits, according to the GFSC.
Total deposits were £120.2bn at the end of the quarter, from £124.6bn at the end of June and £136.3bn a year earlier, the Guernsey Financial Services Commission figures show.
‘Significant exchange rate effects’
The effect of exchange rates on the quarter’s figures reported in sterling terms was also described as significant and positive, since money on deposit in a currency that strengthened relative to the pound would show up as having increased in value when measured in pounds.
Sterling weakened by 6.3% against the euro and 7.4% against the Swiss franc, and by 3% against the US dollar during the quarter.
“Looked at in their underlying base currencies, deposits in US dollars fell by 4.4%, deposits in euros fell by 13.6% and deposits in sterling fell by 6.2%,” the GFSC said in a statement on its website.
“However, deposits in Swiss francs rose by 6.2%, albeit from a lower base than the other currencies.”
Peter Niven, chief executive of Guernsey Finance, the marketing arm of the island’s financial services industry, stressed that the decline in Guernsey’s bank deposits “is being largely driven by one particular product, the Swiss fiduciary deposits, and in fact others, such as the local interbank market are performing more resolutely.”
Added Guernsey director of banking Philip Marr: “The very low interest rate environment continues to influence the shape and size of banks’ balance sheets as adjustments are made from the peak levels at the end of 2008.
“There were some signs that deposit levels had begun to stabilise in the last month of the quarter.”
Review: ‘diversify’
News of the fall in Guernsey’s deposits comes less than two months after a review of Guernsey’s banking industry broadly recommended that the island diversify its range of banking services to reduce risk, particularly with respect to deposit gathering.
In his review, former UK MP Lord Hunt noted that the “broad thrust of Guernsey banking strategy should be to diversify away” from such areas as deposit gathering, and “towards a mix of high value-adding banking services”.
He added: “I recommend that the GFSC (Guernsey Financial Services Commission) pay particular attention to the governance of those banks operating business models particularly vulnerable to any squeeze on their liquidity.”
Lord Hunt, who was commissioned to conduct the review in March in response to the global economic downturn, said he would not make “any specific recommendations for the ideal amount” of deposit gathering.
No new banking licenses were issued during the third quarter but one was surrendered, as a result of the merger of Scarborough Channel Islands with Skipton Guernsey Ltd.
More information may be found at the Guernsey Finance website, www.guernseyfinance.com, and GFSC website, www.gfsc.gg.
