BANKS HAVE pulled back from lending to small business, according to the latest figures from the Central Bank.

Lending to non-financial corporates, ie businesses, fell by €2.8 billion last month, while growth in overall lending to the private sector fell to its lowest level in almost 15 years.

Banks “pulled back” on non-mortgage lending in December, according to Central Bank statistician John Kelly.

He added that there is evidence to suggest that although banks are passing on recent ECB interest rate cuts to companies with large loans, customers with smaller loans (who are likely to be small enterprises) have not seen the benefit of lower interest rates.

Overall private-sector credit growth dwindled to 6.6 per cent in December; this is the lowest growth rate seen since April 1994. At that time, Ireland was “coming out of shock” following the 1992/1993 currency crises, he said, and interest rates were very high and house prices depressed.

Following historically low rates of residential mortgage lending in October and November, home loans increased by €281 million in December. However, the annual rate of increase declined to 5.8 per cent, the lowest rate recorded since 1986.

“General economic conditions have reduced confidence and dampened demand for mortgages,” the bank said.

Falling house prices may be delaying house purchases, and although interest rates are falling, mortgage credit is harder to obtain as banks tighten their lending criteria.

Alan McQuaid, chief economist at Bloxham Stockbrokers, predicted that although further ECB interest rate cuts are likely in the coming months, credit growth is unlikely to pick up any time soon, and may even turn negative.

“Banks still seem reluctant to lend in the current environment, and all the indications are that job losses will mount up quite sharply this year,” Mr McQuaid explained.