Signs of pickup as credit card debt up 5%

Lending to households and businesses continued to decline over July, although there are signs that the deposit books at the Irish banks have stabilised, according to the latest data from the Irish Central Bank.

However, credit card debt rose by 5% from Jul 2011 to Jul 2012 — the first year-on-year rise in four years, potentially pointing to a tentative pickup in consumer demand.

Bank lending to households was down 3.6% in July compared with Jul 2011. Mortgage lending was 2.1% lower in Jul 2012 than it was in the same month in 2011, although lending for consumption and other purposes dropped by 7.8% for the same period.

“Lending to households declined by €471m during the month of July, following a net monthly increase of €55m in June. Developments in July were mostly driven by a decline in loans for consumption of €225m. Loans for house purchase also fell by €157m, while loans to households forother purposes declined by €88m,” the Central Bank said in a statement.

“The monthly net flow of loans to households averaged minus €227m in the three months ending Jul 2012, which consists of average net flows of minus €102m in loans for house purchase, minus €73m in loans for consumption purposes, and minus €52m in lending for other purposes.”

Lending to non-financial corporations fell by €297m on an annualised basis in July on the back of a €339m drop in June compared with the previous 12 months.

The Central Bank issued a report last week showing that bank lending to the SME sector was the second lowest in the eurozone after Greece, with the lack of lending caused by a lack of credit flow from the banks. The Irish Bankers’ Federation rejected the claim and blamed the low levels of lending on weak demand.

“The bottom line is that Ireland remains a long way from where it wants/needs to be as regards credit supply/demand 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/demand for credit will stay subdued, severely hampering the overall recovery prospects for the economy as a whole in the process,” said Merrion Stockbroker economist Alan McQuaid.

Household and non- financial corporate deposits also rose at their fastest pace in over two years, confirming the trend seen in recent figures released by the Government that showed deposit levels at domestic banks at their highest since Jan 2011.

“Deposit stability in the Irish banks has been one of the most positive features of the Irish macroeconomic trends in the year to date. This data shows the trend continued into H2,” said Goodbody Stockbrokers’ Dermot O’Leary.

— Additional reporting by Reuters