Banks continue to grow deposits as loan books shrink

Irish banks are continuing to deleverage by shrinking their loan books and increasing their deposit books, according to the latest set of banking statistics from the Central Bank.

Loans to Irish households fell by 3.7% for the 12 months to the end of October, the same rate of decrease to the end of August and September. Mortgage lending was 1.9% lower on an annual basis in October, while lending for consumption and other purposes was down 8.6% for the same period.

Lending to businesses fell by 4.2% for the 12 months to the end of October.

During the boom years, Irish banks availed of the wholesale markets to ramp up lending to the property sector. When the country entered an EU/IMF bailout programme in Nov 2010, the banks had to agree to reduce their loan-to-deposit ratios to roughly 120% — down from roughly 180%.

While loan books are getting smaller, banks’ deposit books are growing. Deposits rose at an annual rate of 2.8% at the end of October, following a 1.8% annual increase at the end of September. Household deposits were up 0.4% to the 12 months, while corporate deposits, mainly from theinsurance and pension funds sector, were up 7.4%.

Deposits by non-financial corporates were up 1.6% to the end of October. There was a rise of €1.5bn in household deposits over the course of October.

However, as long as banks are deleveraging, then they will not be lending, which means credit is choked to the wider economy.

“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,” said Merrion Stockbroker economist Alan McQuaid.

“As we’ve said on numerous occasions recently, Ireland remains a long way from where it wants or 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... the supply/demand for credit will stay subdued.”



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