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Banks line up to issue CDs, as market forecast to explode Back  
A number of Irish banks are looking at issuing CDs following legislative changes in the last Finance Act.
Ulster Bank Ireland is likely to be first off the mark believing the certificates are another useful weapon in its armoury when offering products to its corporate customers. The bank believes that the offer will prove popular as many investors like the flexibility, which a Certificate of Deposit (CD) can offer over a normal loan or even commercial paper.

Bank of Ireland will be offering the CDs assuming that it gets the go-ahead from its tax department and customer demand. Bank of Ireland already issues significant sterling CDs from its London office.

AIB is also looking at the market and it too will be offering a programme if there is sufficient demand from customers such as corporates, fund managers and building societies. However, issues such as term and size have yet to be decided. IIB Bank is also expected to issue CDs.
The banks generally like CDs because they can issue them slightly cheaper than they can pick up deposits, as investors are willing to pay a small premium of one to two basis points for their liquidity.

The agency Bank One has been looking at setting up CD issuance facilities in Dublin for three to four years.Bank One which acts as an intermediary and facilitates settlement is talking to both IFSC licensed and domestic banks at the moment.

Alex Pashley of Bank One’s depositary and clearing centre said the new legislation will really open the market. ‘Over the past 18 months there has been a privately placed market in Dublin which is already around ?1 billion to ?1.5 billion. We would expect that to grow at least 10 fold, reaching at least ?10 billion. We are hoping to have five new banks on aboard in about 6 to 8 months.’
According to Pashley the CDs allow Irish banks to reach a different group of investors and significant number of UK pension and insurance funds are interested in taking paper from Irish banks. ‘US banks and financial institutions are also interested in CDs from Irish banks. They can shift it much quicker than commercial paper and are thus willing to increase their exposure,’ he says.

CDs are very liquid negotiable instruments. An investor can place say E500,000 with the bank for a year getting a certificate of deposit in return . If the inevstor then needs the cash before the time has expired it can sell the CD. The buyer then acquires the right to receive the repayment when the time is up. This extra liquidity is valuable to many investors who would prefer not to have to rely on one counter party to break.

National Irish has found that the cost of setting up euro CDs was prohibitive while there was not enough depth in the market. ABN Amro and Bank of America also have no plans to offer CDs at the moment.

Last month, UniCredito Italiano Bank (Ireland) plc launched the first CD under Finance Act 2003 and the second ever in Ireland, following DEPFA Bank’s CD programme launched in 1994 for $3 billion.

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