Brexit pushes growth in saving to highest for a decade

Lodgements to banks grew at the biggest rate in more than a decade in April compared with the same month last year, as uncertainty around Brexit dissuaded households from taking on more debt.

The latest money and banking statistics from the Central Bank showed household deposits recorded a net inflow of €472 million in April, continuing a trend of growing household deposits.

In annual terms, lodgements were €5.1 billion higher than withdrawals, representing growth of 5 per cent over the year. This was the largest year-on-year growth in the series since May 2008.

Cantor Fitzgerald analyst Alan McQuaid said the appetite among households to run up debt was unlikely to grow.

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“The very high level of deposits despite ultra-low interest rates still suggests that households remain cautious all things considered, and appear reluctant to take on more debt,” he said.

“And with the Brexit uncertainty hanging over the economy, this is unlikely to change anytime soon.”

Overnight deposits, which include current accounts, continued to be the principal driver of the increase in household deposits. In annual terms, overnight deposits grew by €7.4 billion, or 9.4 per cent, which is the largest increase since the year to end-August 2017.

Irish households continued to be net funders of the banking system. Banks held €16.7 billion more in household deposits than loans at end-April.

Meanwhile, lending to households for consumption continued to increase, growing by €136 million in the month or €612 million in the past year. That was the largest annual increase since October 2017.

Lending for car purchase, which includes term loans and hire purchase agreements including Personal Contract Plans (PCPs), contributed to the growth.

Annual gross new car finance lending in the year to end-April of €2.1 billion was the highest amount recorded since the series began in 2012.

Annual bank lending to households increased by 1.9 per cent to end-April 2019. On balance sheet household lending has now been positive since mid-2017.

Mortgage loans, which account for 83 per cent of on balance sheet loans, fell in net terms by €47 million. Annual growth in the year was €1.2 billion, or 1.6 per cent, however, compared to an increase of just €211 million for the year to end April 2018.

Net consumer lending was €136 million in April. For the twelve-month period to end-April, net lending was €612 million, marking the largest annual increase since October 2017.

Gross new lending for car purchase was €2.1 billion over the previous 12 months, the largest amount of new lending recorded since the series began in 2012. Non-PCP hire purchase agreements were the main driver of the increase in new lending.

Net lending for other purposes grew by €7 million during the month. However there was a net decline of €118 million over the 12 months to end-April 2019.

“Notwithstanding the caveats relating to the credit gap indicators at this time, the April banking data continue to indicate a weak overall credit environment in Ireland,” said Mr McQuaid.

“Things are not helped by the ambiguous stance of the banking regulators. On the one hand they are asking banks to lend more, but on the other hand they are telling the financial institutions to make sure they have sufficient capital in the event of another economic downturn/financial crisis.

“And from the banks’ perspective, not adhering to the latter carries a heavier penalty than ignoring the former.

“Still, the bottom line is that credit will need to flow at a much stronger level than currently if the Irish economy is to continue to grow strongly over the long-run in a post-Brexit environment.”