THE FLOW of credit to businesses increased slightly last month, reversing the downward trend evident in recent months. However, overall lending to the private sector fell for the third consecutive month as outstanding credit card and mortgage indebtedness contracted.

The latest private-sector credit figures from the Central Bank show that lending to non-financial corporates – ie businesses – rose by €225 million in May.

However, this increase is relatively modest when compared to the tightening of credit evident earlier in the year. In April alone, bank lending to businesses shrank by almost €900 million.

Alan McQuaid, chief economist with Bloxhams stockbrokers, said the pick-up in credit supply to businesses could be interpreted as a green shoot, but warned that “there’s a long way to go before we are where we want to be”.

A survey conducted by the Irish Small and Medium Enterprises (Isme) association found that more than half of bank branches contacted had no knowledge of European Investment Bank (EIB) funds specifically allocated for lending to SMEs at reduced rates.

The EIB has agreed to make €350 million in loans available to Irish banks this year to lend to SMEs that are struggling to raise money.

However, Isme chief executive Mark Fielding yesterday accused the banks of being “deceptive and obstructive” in the roll-out of the EIB loans.

“The banks’ current behaviour is another indication of their continuing high-handed disregard for small business, the economy and the national interest,” Mr Fielding said.

Isme called on Minister for Finance Brian Lenihan to ensure that EIB funds are being lent where required.

Yesterday’s Central Bank data also showed that residential mortgages lending fell by € 18 million in May.

This brought the annual rate of increase in mortgage lending to a record low of 2.6 per cent in May. As in April, mortgage repayments exceeded new mortgage lending, reflecting the low level of activity in the housing market.

Payments on credit cards also outstripped new spending last month, with the result that outstanding indebtedness fell by €23 million during the month

“Although constraints on access to lending are clearly a factor, the trend in Irish credit card debt suggests demand for finance has also weakened sharply, said Austin Hughes, chief economist at KBC Bank Ireland.