Lending declines but deposits remain stable

Lending to Irish households continued to decline in the year to February, picking up pace from the previous month, but bank deposits continued to be stable.

New data from the Central Bank showed loans fell by 4.2 per cent over the 12 month period, slightly higher than the 4 per cent recorded in January.

Residential mortgages were down 1.8 per cent year on year, with lending for consumption and other purposes down by 11.1 per cent over the same period.

On a monthly basis, lending to household was €634 million lower, moderating from the €827 million decrease in January. According to the Central Bank, the February decline was mainly due to a decrease of €341 million in loans for non-housing and non-consumption purposes, with housing and consumption related loans falling by €255 million and €38 million respectively.

Companies also saw a fall-off in lending, with loans down by 3.7 per cent over the year, with the net flow of loans down by €93 million.

Irish resident private-sector deposits climbed higher over the year, rising by 2.9 per cent, with household deposits up 1.1 per cent. Company deposits, meanwhile, were up 5.1 per cent.

"Given the recent uncertainty in the euro area, these data will take on a greater significance over the coming months," Goodbody analysts said.

Credit institutions’ borrowings from the central bank fell by €7 billion last month, bringing the outstanding amount to €60 billion. Of that, €49.4 billion was accounted for domestic market institutions.

Reliance on central bank support fell in February as IBRC was liquidated and banks continued to deleverage.

"Although there has been some sign of improvement in the deposits side in the past few months, Ireland remains a long way from where it wants/needs to be as regards credit supply/demand to get the domestic economy moving again," Merrion Stockbroker's Alan McQuaid said.

"As we have pointed out on numerous occasions recently, the lack of available credit will severely hamper the overall recovery prospects for the economy as a whole, and keep the unemployment rate higher than it would otherwise be."