THE CREDIT crunch affecting households and businesses continued in December, according to new figures from the Central Bank.

Lending to households declined by €90 million on a month earlier, following a fall of €363 million in November. As of the end of December, Irish households owed €110 billion to banks based in the State.

Loans to non-financial businesses decreased by €665 million during December 2011, following an increase of €39 million in November. At the end of the month, their aggregate bank borrowings stood at €88 billion.

Banks traditionally fund most of their lending from the cash deposited with them. In the middle of 2010, deposits began leaving the banking system in large amounts. The situation stabilised in mid-2011. In December Irish households increased the amount of cash they held on deposit in the banking system by €540 million on a month earlier. Their total aggregate deposits at the end of the year stood at €91.3 billion.

Private-sector deposits from non-residents fell by €4.3 billion during December, the vast majority of which relates to IFSC-based banks. This is likely to reflect acute concern about the future of the euro towards the end of last year.

Borrowings by banks in Ireland on longer-term loans from the European Central Bank rose by €4.5 billion in December when the Frankfurt bank offered European financial institutions three-year loans at a rate of just 1 per cent for the first time.

However, the increase in the borrowing from the ECB was due to overseas banks in the IFSC drawing on the long-term loans from Frankfurt rather than the Irish banks, the Central Bank said. Domestic credit institutions accounted for just under €72 billion of the total ECB loans, a decrease of €1.1 billion on the previous month.

Banks in Ireland, including international banks at the IFSC, had borrowed a total of €107 billion from the ECB in December and a further €44 billion in the “other assets” category, which comprises mostly emergency lending by the Irish Central Bank to the banks. The emergency loans were down from €45.7 billion in November.

The dependence of the Irish guaranteed banks on ECB loans fell by €2.4 billion to €67 billion. The dependence of the guaranteed banks on ECB and exceptional liquidity assistance emergency loans from the Irish Central Bank fell to €111 billion in total, its lowest level since October 2010.

“Clearly, deleveraging, as well as stability in deposits, is resulting in a lower (albeit still high) dependence on central bank funding,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.