Reluctance to lend ‘slowing recovery’

LENDING by Irish financial institutions continued to fall in April, reflecting poor demand from both businesses and consumers and a reluctance by the banks to provide credit.

That reluctance could slow the pace of economic recovery, warned Alan McQuaid, economist with Bloxham Stockbrokers.

While demand has been “muted” for some time, lending data for April maintains the concern that the Euroland/Irish economic recovery could be damaged.

It is possible that “a significant number of companies will be denied the credit they need to get on with their day-to-day business”, he said.

In April the monthly fall in business lending was at €109m, well down from the €1.3 billion drop in March.

Lending to businesses dropped by 4.5% compared with the April last year and was virtually unchanged from the 4.6% annual fall recorded in March.

The Central Bank’s figures show mortgage lending declined by almost €350m during April, giving a fall of 1.6% over the 12 months.

By the end of April the total lending to households fell at an annual rate of 1.8% as consumers paid back €11m more on credit cards than they spent in April, a much lower amount than the €71m they paid off during the month of March.

PIBA, the country’s largest group of independent brokers, said the continuing fall-off in credit showed that as far as lending goes “normality is some way off”.

Once again it has called on the Government to increase the minimum lending requirements it has set for the banks in an effort to boost lending to the private sector.

Rachel Doyle, director of PIBA Mortgage Services, said: “While the rate of decline in mortgage lending at €348mm during the month of April is lower than the fall of €717m in March, at a time when affordability is at an all-time high, the reality is that people are having great difficulty in acquiring mortgages.”

These fresh falls follow the dramatic decline of close to 60% in new mortgage loans in 2009, she said.

They are a further reminder of the “acute nature of the issue,” with first-time buyers taking the brunt of it, she said.

The drop of 4.5% in lending to businesses is also worrying as it shows a continuing drop on a previous very bad year and reflects “losses at every level, from jobs right through to Government revenue”, she said.

“The reality is that banks are cherry-picking in a very crude way and that is having a damaging effect on everyone, including the banks themselves,” she said.

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