Consumers dip into savings while bank lending slows

CONSUMERS are dipping into their savings more while banks are lending less money, Central Bank data indicates.

The Central Bank did, however, say that lending to businesses increased by €158 million in July, the second monthly rise in a row.

Despite this, however, lending to businesses is down 2.4% over the last year.

Goodbody economist Dermot O’Leary said the fact that the flow of credit has increased to businesses for the last two months is a positive sign.

Figures for July show lending to consumers fell by 3.9% in the year, while mortgage lending was down 2.4%. Lending for other purposes fell by 8.8%.

Mr O’Leary also said the key number to watch in relation to the perceived stability of the Irish banking system is deposits.

Deposits from households, businesses, financial institutions and pension funds fell at an annual rate of 10.4% in July, compared to a 10% fall recorded in June.

In July, deposits fell by €1 billion, with household deposits accounting for almost half of the decline.

Goodbody calculates that private deposits at banks covered by the state guarantee are down by 20% year-on-year, with deposits in the non-covered banks up 4%.

“This suggests a shift into non-covered banks, but the fall in deposits may also reflect the fact that consumers have to dip into savings to fund consumption,” he said.

Household lending declined in July by €709m. Developments last month were driven by a fall of €334m in loans for house purchases and a decline of €292m in loans for consumption purposes. Lending for other purposes fell by €83m.

Bloxham economist Alan McQuaid said the figures are disappointing.

“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,” he said.

“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 remain subdued in our view, severely hampering the recovery.”