HOUSEHOLDS CONTINUED to reduce their debt levels in the third quarter of 2010, new figures released by the Central Bank show. The declining trend has now been in evidence for two years.
The figures released yesterday show that Irish households had outstanding loans of €186.7 billion in the third quarter. This was down from a peak of €203.3 billion just seven quarters earlier. The shrinking of household liabilities is likely to reflect both a desire to pay down debt and much stricter credit conditions.
Household indebtedness remains high, however, as there was a three-fold increase in borrowing in just five years during the credit boom.
On the other side of household balance sheets – assets – trends also proved favourable to households in the third quarter.
However, despite the rise in the value of total household financial assets since the nadir of early 2009, only half of the ground lost since the peak in values had been recovered. In the third quarter of 2010 Irish households’ financial assets were €20 billion below their peak in the second quarter of 2007.
The value of pension and insurance funds continued to recover strongly in the third quarter.
The recovery in equity prices internationally, in which pension and insurance companies are heavily invested, has led to this improvement.
By contrast, the value of company shares held by households continued to fall. This reflects the weakness of Irish equities and their much more limited recovery since the worst of the financial crisis compared to most other national share indices.
Net financial wealth of households (financial assets less liabilities) continued to recover in the third quarter owing to a rise in the value of assets and the paying down of debt which reduced liabilities. In the third quarter of 2010, net financial wealth stood at €93 billion.
Despite the increased net wealth position of households since a low point in the first quarter of 2009, it remained well below its peak in the final quarter of 2006 of €130.6 billion. This represents a 29 per cent decline for the peak to the latest available quarter.
