Central Bank says lending to businesses continues to decline

LENDING TO businesses continued to decline at the end of 2009, and at a faster pace than in previous months, according to the latest figures from the Central Bank.

Credit to non-financial corporations (NFCs) fell by 3.2 per cent in December, compared to a 2.7 per cent fall for November 2009 and a decline of 2.2 per cent recorded in October.

The figure has been contracting on an annual basis since July last year.

The statistics come in the wake of a Euro Area Bank Lending Survey, published last Friday, which showed that the credit standards adopted by Irish banks for lending to the SME sector tightened in the third quarter of 2009.

The Central Bank’s monthly statistics also show that mortgage lending was down, although to a lesser extent than business lending.

Residential mortgages fell by 0.3 per cent – a drop of €19 million – with total outstanding property debt standing at €147.7 billion at the end of last year.

Credit card debt was also down on the year, with personal credit card debt 0.7 per cent lower in December 2009 compared with December 2008. Total credit card debt was €3.1 billion at the end of 2009.

The figures also show that people are choosing to pay off their credit card bills rather than incur new debt on their cards, reversing the predominant trend in 2009 which saw new spending exceed the value of total repayments.

Overall, private sector credit fell almost €1.2 billion in December, a decline of 0.3 per cent compared with the same month a year earlier. This followed falls of €2.3 billion and €2.5 billion in October and November respectively.

However, underlying transactions accounted for most of the decline in December rather than valuation effects as had been the case in previous months.

Headline private sector credit declined by 6 per cent in the year ending December 2009.

Approximately two-thirds of this annual decline was a result of valuation effects such as write-downs of loans, increased bad-debt provisions and exchange rate effects.

When all valuation effects are excluded, the underlying stock of private sector credit in Ireland was a total of 2.1 per cent lower in December 2009 compared with December 2008.

Business lending

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