Lending by banks to households continues to fall while deposits increase as the sector continues to deleverage.
Latest figures from the Central Bank show that Irish bank lending fell €264m or 3.6% in November compared to the same month in 2011. However, the falloff in lending activity is moderating. In October, bank lending was down €515m on the year earlier period.
Mortgage lending was down 1.6% over November while loans for personal consumption were down 9.1% in the same period.
Lending to Irish corporates fell 3.9% in the 12 months to the end of November, compared with 4.2% falls in each of the 12-month periods to the end of September and October. However, lending to Irish businesses rose €287m over the course of November, only the second monthly increase last year.
Irish banks built up excessive loan-to-deposit ratios over the boom years. Under the instructions of the troika as part of the EU/IMF bailout programme, Irish banks are now shrinking their loan books and increasing their deposit bases.
According to Central Bank figures, Irish private sector deposits rose at an annual rate of 2.2% to the end of November. Deposits from Irish households rose 1.4% over the same period.
“Although there has been some sign of improvement in the deposits side in the past few months, the ongoing underlying message from the Central Bank data is still one of overall weakness and difficulties in the banking sector. As we’ve said on numerous occasions recently, Ireland remains a long way from where it wants/needs to be as regards credit supply /demand to get the domestic economy moving again. At the end of the day, the lack of available credit will severely hamper the overall recovery prospects for the economy as a whole, and keep the unemployment rate higher than it would otherwise be,” said Merrion Stockbroker economist Alan McQuaid.
At a press briefing to announce the end-of-year exchequer figures on Thursday, Finance Minister Michael Noonan said that the national savings rate was now 14%, compared with 1.5% during the Celtic Tiger years. If people spent more and brought the savings rate down to 10%, then it would add 1% to growth, the minister said.
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