Figures show credit expansion decline

LENDING figures for July show borrowing for house purchases has hit its lowest point in five-and-a-half years.

Central Bank statistics just published show the annual rate of growth for mortgage lending fell to 17.9%, down from 19% in June.

The data also showed the slowdown in credit card debt was still off its earlier peaks though picking up from the lows seen in June.

Overall concerns about rising interest rates and a possible meltdown in house prices have seen a sharp slow down in the pace of credit expansion in the past year.

Annually adjusted, credit growth increased marginally to 20.3% year on year, compared with 20.2% the previous month.

Private Sector Credit (PSC) has now been slowing since June 2006, when the rate peaked at above 30% for the first time since March 2000, said the bank.

Overall the bank said the month-on-month increase in PSC in July 2007 was not particularly strong, at 4.9 billion. At the end of July the outstanding PSC figure stood at 347.7 billion at end-July 2007.

The bank also highlighted that as well as mortgages the rate of debt in the real estate and construction sectors also continued to decline in line the growing pessimism about the housing market as a whole.

Non-mortgage credit, which had been slowing for the past 12 months also continued to ease with the adjusted rate falling to 25.9% in July, from 26.3% in June.

The lower credit figures reflect an easing of growth in the economy expected to slip to 5% this year against growth of 6.5% in 2006.

Last month’s figures still showed further strong demand for term loans which expanded by 2.6bn.

On the credit card side the figures showed some pick-up in demand for this very expensive form of credit.

However, the increase was a modest 11.7%, according to the Central Bank.

That increase followed a significant drop in May when repayments rose sharply, most likely as a

result of maturing SSIA accounts, the bank said.

Commenting on the figures, Alan McQuaid chief economist Bloxham Stockbrokers said while the appetite for credit continues to ease a lot will depend on what happens to ECB interest rates.

If the bank holds off on its base rate rise of 0.25% that wold push rates up to 4.25% at its September meeting it could improve sentiment.

However, he expects the ECB to raise rates before the year end and that would continue to undermine sentiment in the economy for some time.

However, Mr McQuaid said there was little sign of bad debts emerging in the Irish banks despite concerns that many people were over-extended.

Overall the turbulence in the markets has left the Irish banking sector in pretty good shape.

“That is not to say that some problem might not emerge over time,” he said.

On the credit outlook he said “the bottom line is that higher rates will continue to affect private-sector credit between now and year-end, pushing growth rates down further, but still keeping them well above the Eurozone average”.