Guernsey Financial Services Commission Second Quarter 2003 Banking Sector Activity

Total deposits held with Guernsey banks at the end of June 2003 decreased in Sterling terms by £2,230mn from the end of the March 2003 level of £74,165mn to £71,935mn. Total assets and total liabilities decreased by a lesser figure in the Second Quarter in Sterling terms falling by £1,789mn to £75,185mn as some one-off and technical increases in other liabilities offset the decline in deposits.

There was a net 3% decrease in deposits in Sterling terms but a large part of the decrease reflects exchange rate movements and the net effect of stronger Sterling. After the exchange rate effects have been removed the volume of US Dollars, Euros and Swiss Francs was down, although the underlying deposit volume in Sterling was higher. The amount of Swiss fiduciary deposits declined in Sterling terms to stand at £30,229mn representing 42% of the total. Within the quarter the steepest decline was in Swiss Franc deposits including fiduciary deposits. We understand Swiss Franc interest rates are now so low as to make fiduciary deposits in that currency barely attractive.

No banking licences were issued or surrendered during the second quarter.

The largest single currency type within total deposits remains the US Dollar at 41.9% with the Euro accounting for 20.4% of deposits at the end of June 2003. The proportion in Sterling was up a little at 32.8%.

Local inter-bank activity was up £447mn to £1,441mn.

Philip Marr, Director of Banking commented: "The strengthening of Sterling particularly against the US Dollar had a significant effect in reducing the level of deposits but there were also lower volume effects in the quarter. It would appear that the prevailing low level of interest rates internationally is beginning to have an effect on deposits, notably in Swiss Francs and US Dollars. There are signs that investors faced with such historically low interest rates are choosing to switch away from deposits into other investment outlets".

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