BANKS CONTINUE to tighten the flow of credit to businesses, new figures show.

According to latest statistics from the Central Bank, lending to non-financial corporates (NFC), i.e. businesses, declined by around €150 million (when adjusted for securitisation) in February.

Overall lending to the private sector fell by €95 million over the month, with the annual rate of lending slipping to 4.8 per cent from 6 per cent in January.

Despite lower interest rates and a further fall in house prices, the net increase in residential mortgage lending was just €58 million last month, compared to €350 million in January.

Outstanding indebtedness on credit cards, which has more or less been on a downward slide since October, fell by €51 million in February.

These developments took place against the backdrop of a slowdown in consumer spending, with the volume of retail sales (excluding motor trades) dropping by 8.1 per cent year-on-year in January.

Alan McQuaid, economist at Bloxhams, explained that consumers were “battening down the hatches”, and predicted that until the economy hits the bottom there was unlikely to be any pick-up in private sector credit growth.

“The problem is that we are still probably months away from that point,” he said.

“Indeed, it is likely that adjusted credit growth will continue to edge down ever closer to the zero level in the short-term, and may even turn negative before this crisis is over.”

Responding to the Central Bank figures, chief executive of the Professional Insurance Brokers Association (PIBA) Diarmuid Kelly said yesterday the Government must step in to avoid “further chaos” in the economy.

“Banks, despite what they are stating publicly, are tightening loan criteria.

“They are competing for fail-safe borrowers in an approach that is over-conservative and is not based on solid borrowing criteria.”

He said if this was allowed to continue it would “choke good workable businesses, force entrepreneurs to look elsewhere and further increase unemployment”.