Lending to business fell at faster rate in February

LENDING TO businesses continued to decline in February and at a faster pace than in previous months, according to data from the Central Bank.

Credit to non-financial corporations (NFCs) fell by 3.7 per cent in February on an annual basis compared to a revised 3 per cent decline in January, and a 1.9 per cent fall in December. The amount of credit outstanding to the business sector was €146.8 billion at the end of February, down from €149.2 billion in January. Overall, the amount of money loaned by financial institutions to businesses and households fell by €1.3 billion in February. The drop is less severe than the fall of €3.7 billion recorded in December 2009 and €3 billion in January.

Lending to households – which includes residential mortgages and credit card debt – also continued to decline in February, and at a faster pace, falling by 2.4 per cent in the month compared to the year-on-year fall of 2.2 per cent recorded in January, and December’s 1.5 per cent decline.

Residential mortgage loans outstanding, including securitised mortgages, declined by €156 million during February, bringing the annual rate of decline in residential mortgage lending to minus 0.9 per cent.

The figures did not include the write-downs associated with transfer of assets to the National Asset Management Agency (Nama), but these will be incorporated as of April, and the monthly rate of change adjusted accordingly, the Central Bank said.

On Tuesday, Minister for Finance Brian Lenihan outlined a series of measures as part of the bank recapitalisation plan aimed at addressing the issue of credit to small businesses. AIB and Bank of Ireland will be required to make available a minimum of €3 billion each in new increased credit facilities to SMEs this year and next.

The banks will be required to submit written plans to the Department of Finance on how this lending facility will operate within six weeks. The plans will then be reviewed by former National Irish Bank director John Trethowan.

The two main banks are also to make available €20 million in seed capital for Enterprise Ireland-supported ventures, and €100 million for environmental, clean energy and innovation projects.

The Professional Insurance Brokers Association (PIBA) said the accelerated decline in lending to businesses showed the banks “are not functioning as they should be” and called for the Government to increase the minimum lending requirements it has set for the banks.