Irish banks tighten lending

THE Irish banks continued to toughen their lending stance to both business and household sectors in the second quarter of 2009.

The Central Bank reported banks lending policies got even stricter, continuing an unbroken trend first observed from the second quarter of 2007, it said.

Banks blamed the rising cost of funds, financial constraints and fears about higher risk for introducing even stricter lending policies.

They also identified lower pressure from competition in the market for the change in lending policy.

The findings tend to back recent claims by the business representative body, ISME, that Irish companies are finding it increasingly difficult to fund their businesses.

“Lending to small business remains a major problem,” ISME said in response to the Mazars report into bank lending carried out on behalf of the Government earlier in the month.

As the economy continues to contract banks tightened up on lending to businesses and households, while demand for loans fell, with the drop in demand most pronounced among bigger companies.

The Irish banks said the Government guarantee and re-capitalisation had helped them to gain better access to international funding, but added that access to funds was still restricted as credit remains tight.

That was impacting on their willingness to lend and they expect current trends to stay in place in the coming months, they said.

Irish bank deposits were on average 8% lower in the first five months of 2009, Tom O’Connell, assistant director general of the Central Bank, said.

He was speaking before the Joint Committee on Enterprise, Trade and Employment yesterday which was addressing the area of credit and the financing of business.

“With domestic deposits just 3% lower, there has been a more significant fall in non-resident deposits,”

O’Connell said.

The latest Central Bank findings are part of the survey carried out quarterly by the European Central Bank.

Its quarterly survey found the percentage of eurozone banks which are tightening loan standards for business and households had actually dropped.

Despite that change in sentiment credit remains hard to get, it said. Credit standards for business loans are expected to tighten again during the third quarter of 2009, but at a slower pace than in the second quarter.

The broader ECB survey also found the net percentage of banks tightening credit standards dropped to 21% from 43% in the first quarter, while no bank reported they had eased lending conditions, it said.

The survey showed too that more than half the 118 European banks polled had raised their lending criteria.