Bank lending rate grows slowest in 15 years

THE RATE of lending by Irish banks to businesses and households grew at the slowest pace in 15 years in March, according to monthly Central Bank data.

Private sector credit fell by €3.9 billion due to tighter credit standards and a fall-off in demand.

This brought the annual rate of credit growth to 2.3 per cent , compared to 4.8 per cent in February.

The March lending rate was the lowest since January 1994 and compares to growth of 17.1 per cent in March 2008, the bank said.

Lending to non-financial corporates, ie businesses, dropped by €1.3 billion.

Mortgage lending increased by just €20 million, a historic low, despite recent significant falls in interest rates and a decline in house prices.

This is equivalent to about 80 mortgages with an average loan value of €250,000.

Over the first three months of the year net mortgage lending was €428 million compared with €2.6 billion over the same period in 2008.

The Central Bank also referenced a euro area Bank Lending Survey released earlier this week which found a tightening of lending criteria by Irish banks and a failure to pass on ECB rate reductions in full by all mortgage providers.

It said access to wholesale funding markets for Irish banks “remained very challenging” during the first quarter.

Alan McQuaid, chief economist at Bloxhams, said mortgage demand was likely to be “dampened by general economic conditions, uncertainty with regard to future income and the expectation of further declines in house prices”.

In terms of overall lending, he said the picture for Ireland was very consistent with the rest of Europe.

“There is not enough credit in the system to get economic activity moving again and these figures don’t suggest there will be a recovery anytime soon.”

The European Central Bank is expected to cut interest rates again next week to 1 per cent and also outline unconventional policy measures to stimulate the euro zone economy.

A spokesman for the Irish Banking Federation (IBF) said it was “too simplistic” to suggest the fall in credit to businesses was because banks had stopped lending.

He pointed to the Bank Lending Survey which found business lending by Irish banks was constrained during the first quarter by the rising cost of funds and balance sheet restrictions.

This survey also reported a fall in demand for business loans over the period.

“There is no denying there is a greater tightening but it is wrong and too simplistic to say it is because the banks aren’t lending,” the IBF spokesman said.

The level of outstanding indebtedness on credit cards rose just 1.1 per cent last month, compared with growth of 8.6 per cent 12 months ago.

According to the Central Bank, consumers spent 16 per cent less during the first three months of the year compared to the first quarter 2008.