Household deposits hit €100bn despite zero rate of return

Risk-averse Irish consumers are continuing to keep their money on deposit despite the near zero rate of return.

The Central Bank’s latest monthly banking statistics show household deposits hit a record €100.6 billion in September, up €3.6 billion on an annual basis.

Merrion economist Alan McQuaid said the high level of saving reflects the ongoing caution of consumers.

“It makes you wonder what sort of deposits we would see if interest rates started to rise,” he said.

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The figures also showed that loans to Irish households rose at a rate of 0.5 per cent year-on-year in September compared with annual increases of 0.2 per cent in August and 0.1 per cent in July, reflecting the gradual, albeit modest, recovery in lending since the financial crisis.

When adjusted for loan sales and securitisations, there was an annual fall of 1.5 per cent in lending, the lowest year-on-year drop since November 2009.

Lending for house purchase, which accounted for 83 per cent of total household loans, increased in net terms by €301 million in September.

Non-housing loans increased by 3.3 per cent in annual terms in September, marking 11 consecutive months of annual growth, while drawdowns on loans for consumption exceeded repayments by €710 million in the year to the end of September. The figures show net lending to non-financial corporations declined by €892 million, or 2.1 per cent in annual terms, in September.

The figures mean that Irish households continue to be net funders of the Irish banking system with banks holding €8.2 billion more household deposits than loans in September.

In contrast, household loans exceeded deposits by €72.6 billion in May 2008, just before the economy and the banking system crashed.

"The latest set of credit figures are again a mixed bag, with some good and bad features," Mr McQuaid said. "But notwithstanding the caveats relating to the credit gap indicators at this time, they are still suggestive of a weak overall credit environment in Ireland. The bottom line is that credit will need to flow at a much stronger level than currently if the economy is to grow to its full potential over the long run."