Decline in lending hitting companies

IRISH firms continue to suffer a serious downturn in business despite reports declaring the recession over.

Central Bank figures for May show the pace of decline picked up again as lending fell 3.4% in the year to May 2010.

That compares to revised figures showing lending to the business sector down 3.3% in March and by 2.9% in April.

The amount of credit outstanding to institutions stood at €128.5 billion at the end of May, down from €134.2bn at the end of April.

The bank said the decline reflected an increase in bad debt provisions by the banks as well as loan transfers from the major banks to the National Asset Management Agency (NAMA).

Loans with a value of €5.2bn at the end of April were transferred from resident credit institutions to NAMA during the month. A further €1.5bn was transferred by overseas banks.

The serious loss of consumer confidence continues to be reflected in the lending figures with household credit, which covers residential mortgages and credit card debt, also dipping over the period by 1.5%.

Overall household credit fell 0.2% while credit card repayments beat new spending by €56 million, confirming consumers’ reticence to spend in the uncertain climate.

Credit card debt was down by 0.4% in May. Over the 12 months the number of personal credit cards fell by 2% and as a result the average outstanding credit card debt was up by 1.8%.

Residential mortgage lending fell 1.8%, to €145.8bn, during May, a decline of €352m, further reflecting the poor state of the housing market, with just 12,000 homes projected to be built this year.

In its commentary, the bank said uncertainty in the broader European money market led to a tightening of liquidity, forcing the ECB to intervene further to ensure a steady flow of credit to the European banks.

Fears about the ability of some eurozone countries to fund their debt has contributed to the tighter lending conditions.

That situation “prompted the Governing Council to introduce measures such as the Securities Markets Programme to ensure the transmission of monetary policy was not adversely affected by the prevailing market conditions,” said the bank.

As a result, funds provided as part of the enhanced monetary policy operations increased in May by approximately €11.4bn as nervousness persisted over the ability of some countries, including Greece, to meet future debt repayments.

PIBA, the insurance broker body, said the latest credit figures showed a continuing decline in lending to businesses and in mortgages.

PIBA, which is Ireland’s largest group of independent brokers, said the figures were “indicative of a serious and stubborn problem with bank lending”.


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