Private sector credit declines by 7%

PRIVATE sector credit declined during January as institutional investors and private individuals continued to exercise caution in relation to their debts. Headline private sector credit (PSC) fell by 7.1% during January, according to the Central Bank.

Write-downs of loans and increased bad-debt provisions accounted for more than half of this decline. Residual mortgages declined by €269 million during the month.

Mortgages outstanding were €147.4 billion at the end of January 2010. The annual rate of change in mortgage lending fell to minus 0.7%.

Private individuals are also being more cautious. Consumers repaid €83m more than they spent on their credit cards in January. The amount of debt outstanding on credit cards fell by 1.3% over the year.

Bloxham economist Alan McQuaid said: “With the European Commission giving its approval this morning to NAMA, hopefully this will help in the overall restructuring of the banking sector and a return to a normal and responsible functioning of the market sooner rather than later.

“However, with the economy struggling and labour market conditions still weak it is hard to see private sector credit/residential mortgage lending showing much improvement in the first half of the year.”

The Central Bank said the strengthening of the euro against other major currencies through most of 2009 contributed to the decline PSC.

The decline in PSC in the 12 months ending January 1, 2010 was minus €11.2bn.

The Central Bank said the pace of decline in outstanding indebtedness on personal credit cards was minus 1.3%. Total repayments were €83m higher than new spending in January. The bank said the acquisition of toxic property loans by NAMA will have a significant impact on the data series it publishes.