Guernsey Financial Services Commission First Quarter 2004 Banking Sector Activity

Total deposits held with Guernsey banks at the end of March 2004 decreased in Sterling terms by £1,290 million from the end of the December 2003 level of £69,703 million to £68,413 because of the strengthening of Sterling. Putting it into context, if the figures had been expressed in US dollars there would have been a 1.3% increase in deposits. A more positive development was that despite the adverse exchange rate movements, in Sterling terms total assets and total liabilities decreased by only £95 million to £72,755 million because of significant increases in short term paper issued. This paper is currently in demand from international private banking clients as structured products.

The 1.9% decrease in deposits expressed in Sterling terms hides a more complex picture driven by the continued strengthening of Sterling exchange rates in the quarter. US Dollar deposits were down only slightly (-0.3%) in their underlying currency but Euro deposits were up 2.6% when expressed in their underlying currency. Sterling deposits were also up (by 1.9%) in the quarter and the only material decline was the 9.6% fall in underlying Swiss Franc deposits which are suffering because of the very low interest rates on offer in that currency.

Philip Marr, Director of Banking commented
"If we look through the banking figures expressed in sterling and remove the effects of the strengthening of the pound the picture has some encouraging features. In the underlying base currencies the US Dollar deposits were down only slightly but deposits in euros and sterling increased more than marginally. Swiss franc deposits are continuing to decline materially but that is because it is no longer a viable investment outlet due to the very low interest rates. We are also seeing increases in issues of short term paper which are not classified as deposits and which are becoming increasingly popular as international private banks seek to supply the demand for structured products from their private clients"

To read the press release in full, please visit the press section of www.gfsc.guernseyci.com