The Irish banking system continued to wean itself off central bank lending as 2012 ended, according to figures published yesterday.

As of the end of December, commercial banks owed the central banking system €111 billion, down €5 billion on the previous month and €27 billion below the amount outstanding last January.

Borrowing from central banks is usually a last resort for commercial banks. In September 2010 market confidence in Irish banks evaporated. When they were unable to raise private funds they were forced to tap the central banking system.

Lowest since 2010

The amount outstanding at the end of the year was the lowest since August 2010.

That said, it remains high – the €111 billion the commercial banks owe the central banking system is equivalent to approximately 70 per cent of gross domestic product.

Of the total amount, €40 billion was in the form of emergency liquidity assistance (ELA).

Such lending takes place only when commercial banks do not have sufficient high-quality collateral to borrow from the European Central Bank.

In the euro zone national central banks provide ELA and bear the credit risk of it.

Most of the ELA provided by the Irish Central Bank is understood to have been extended to the Irish Bank Resolution Corporation.

Separate figures also published by the Central Bank yesterday show that the average rate of interest on Irish mortgages was 2.99 per cent at the end of November 2012. This was lower than the corresponding rate across the euro zone as a whole, which was 3.6 per cent.