Household lending continues to decline

Loans to companies rose in March, but lending to households continued to decline during March, new data showed today.

According to the Central Bank, non-financial corporates saw credit from financial institutions rise by €34 million during the month, compared with a decline of €167 million during the month for households. The decline was primarily fuelled by a fall in loans for consumption purposes, which were down €115 million, and a €59 million decline in house purchase lending.

However, both sectors were lower in the year to March, with household lending down 3.9 per cent and a 2.2 per cent fall-off for corporates.

The statistics from the Central Bank also showed Irish resident private-sector deposits were 4.5 per cent lower on an annual basis at the end of last month, slowing from a decline of 6 per cent over the year ending February. Household deposits were 0.9 per cent lower on an annual basis, and corporate deposits declined by 5.3 per cent.

Meanwhile, the European Central Bank said growth in lending to euro zone firms and consumers slowed in March as banks scaled up purchases of government bonds, showing that an ambitious funding drive by the European Central Bank has yet to trickle down to the real economy.

The data offered the first pointer to loan activity since the central bank compleThe data also showed that Irish lenders' borrowings from the European Central Bank totalled €75 billion last month an increase of €3.7 billion as banks took advantage of the recent three-year longer-term finance made available. ted the second of two tenders that flooded the euro zone's banking sector with more than €1 trillion of cheap three-year cash.

Overall money growth in the currency area accelerated faster than expected in March, the data also showed, potentially pointing to a stronger recovery ahead.

But loans to companies and households rose more slowly than hoped while banks, notably in the struggling economies of Spain and Italy, played safe by stuffing their coffers with sovereign bonds.

Loans to the private sector rose by an annual 0.6 per cent in March, today's ECB data showed, compared with 0.8 per cent in February and a Reuters poll forecast for 0.7 per cent.

Meanwhile Italian banks boosted their euro zone government debt holdings by a record €23.7 billion while Spanish banks added €20.1 billion to theirs. French and German banks also raised their sovereign debt exposure.

Separately, the Department of Finance said today deposits at the State-backed banks - AIB Group including EBS Building Society, Bank of Ireland Group, Permanent tsb and IBRC - rose by almost €2.1 billion last month, to €149 million. That represents a rise of almost 1 per cent, and was the largest increase recorded since September.

"Around half of the overall increase during the month came from Ireland which is an encouraging trend," a statement from the Department said.

But analysts warned against too much optimism over the figures.

"Although these latest banking figures are encouraging to some degree, particularly in relation to the deposits side, the underlying message from the data is still one of overall weakness and difficulties in the sector," said Bloxham's chief economist Alan McQuaid.

"The bottom line is that Ireland remains a long way from where it wants/needs to be as regards credit demand/availability to get the domestic economy moving again. The reality is that until the banking sector crisis is fully resolved and things improve on the labour market front then the supply/demand for credit will stay subdued in our view, severely hampering the overall recovery prospects for the economy as a whole in the process."

Additional reporting: Reuters