Growth in private sector lending hits five-year low

PRIVATE SECTOR lending has fallen back to levels last seen five years ago, as the annual rate of increase in private sector credit fell to 14.3 per cent in June, down from 15.1 per cent in May.

Total private sector lending increased by €2.6 billion, or by 0.7 per cent, to €392.9 billion in June, according to statistics released by the Central Bank in its monthly and quarterly reports.

In the first quarter of 2008, 11 out of 15 economic sectors, including real estate and construction, saw lower annual rates of increase than in the first quarter of 2008. Indeed the annual rate of increase in lending to construction and real estate activities has declined in the last six and seven consecutive quarters, respectively.

While the manufacturing sector saw its quarterly growth rate in lending increase during the first quarter of 2008, it was below the average quarterly growth rate for 2007, and the Central Bank indicated it could deteriorate further.

The slowdown in residential mortgage lending is a major factor in falling lending growth rates. In June, the annual rate of increase dropped from a revised 10.9 per cent in May, to 10.2 per cent in June - the lowest rate since December 1991. So far, in 2008, each month has posted a decline in the annual rate of increase on the previous month.

Moreover, the increase in residential mortgage borrowing in the first half of 2008, which resulted in an average monthly rise of just above €900 million, was more than a third lower than in the corresponding period last year. If this trend continues, the Central Bank said that the end-year growth rate may be in single figures.

However, the demand for mortgages from investors proved resilient during the first quarter of 2008, growing to €1.1 billion, up from €828 billion in the fourth quarter of 2007.

The Central Bank's monthly statistics for June also illustrate the ongoing decline in consumer spending. In June, the annual rate of increase in indebtedness on credit cards declined to 11.4 per cent, from 11.9 per cent in May. Month-on-month, both new spending and payments received fell, while outstanding indebtedness increased by only €10 million. This brought total outstanding indebtedness on credit cards to €3 billion.