Bank lending continues to plunge

LENDING by the country’s banks continues to plunge, while the level of deposits continues to fall.

Figures from the Central Bank show the rate of lending decline even quickened slightly, with consumer lending falling 4% in the year to August while business lending dropped 2.5%. Mortgage lending was down 2.4%, while lending for other purposes fell by 9.1%.

Deposits from households, businesses, financial institutions and pension funds also fell in August at an annual rate of 10.4%, the same as in July.

Household deposits were down 5.4% over the 12 months. This highlights that Irish consumers, companies and pension funds have been withdrawing cash from Irish-based banks over the last year.

Overall, deposits dropped by more than €1 billion in August alone, with household deposits down more than €500 million.

Bloxham stockbrokers chief economist, Alan McQuaid, said: “The bottom line is that we are still a long way from where we want or need to be to get the domestic economy moving again. The reality is that until the banking sector crisis is fully resolved and things improve on the labour market front, then the supply and demand for credit will remain subdued in our view, severely hampering the recovery prospects for the economy as a whole in the process.”

The figures show business loans with terms of between one and five years fell in August, as did short-term loans, but there was an increase in long-term loans to firms.

Overall, banks based in Ireland had €94.8bn of outstanding loans with the European Central Bank at the end of August, of which €70.5bn was held by the country’s six domestic banks, a rise of €90m on a month ago.

Mr McQuaid said developments last month were driven by a fall of €242m in loans for house purchase and a decline of €127m in loans for consumption purposes. Lending for other purposes fell by €74m.

The figures showed an underlying decline of €895m in private-sector deposits during August, with household deposits falling by €510m during the month. However, deposits from non-financial corporates were €459m higher during the month.

Meanwhile yesterday European stocks fell, extending the Stoxx Europe 600 Index’s largest quarterly decline since 2008, as reports on Chinese manufacturing and German retail sales added to concern the economy is slowing.