Bank lending levels still in decline

The credit crunch is continuing to affect households and businesses, according to new figures from the Central Bank.

Lending to households fell by €355 million during February following a decline of €691 million in January.

Developments in February were largely driven by a decline in loans for house purchase of €224 million, while loans for consumption and other purposes also decreased by €107 million and €23 million, respectively.

Loans to households were 4 per cent lower on a year-to-year basis, following a decline of 3.9 per cent for the year ending January 2012.

Lending for house purchases was 2.5 per cent lower on an annual basis in February, while lending for consumption and other purposes declined by 8.4 per cent over the same period.

For the three month period ending February 2012, loans to households fell by €370 million, of which €134 million was for house purchases and €172 million was for consumption purposes.

Loans to non-financial businesses declined by 2.3 per cent in the year ending February 29th, following an annual decline of 2.2 per cent in January. On a monthly basis, loans decreased by €167 million during February, following a €548 million decline in the preceding month.

Credit institutions’ holdings of debt and equity securities issued by the private sector decreased by €173 million during the month of February, an annual rate of change in these holdings of minus 6.5 per cent. This follows a decline of 6.9 per cent for the year ending January 31st, 2012.

Private-sector deposits were 6 per cent lower at the end of February on an annual basis while deposits from households were 2.2 per cent lower. Deposits from non-financial businesses declined by 8 per cent in the year to the end of February while deposits from insurance corporations, pension funds and other financial institutions fell by 11.3 per cent over the same period.

Deposits from private-sector residents fell by €55 million last month. Household and non-financial businesses deposits increased by €25 million and €62 million, respectively.

Overnight deposits fell by €678 million in February and household sector overnight deposits were down by €312 million.

The Central Bank said the reduction in overnight deposits may be due to a shift to longer-term deposit products with household deposits with agreed maturity up to two years increased by €325 million during the month of February.

Private-sector deposits from non-residents fell by just under €1 billion during February 2012, the vast majority of which relates to IFSC-based banks.

Borrowings by banks in Ireland on longer-term loans from the European Central Bank fell by €7.9 billion in February, to €87 billion, due to a decline in IFSC banks’ recourse to refinancing operations.

"Although there are some elements of these latest banking figures which may please the Government, particularly on the deposits side, the underlying message from the data is still one of overall weakness and difficulties in the banking sector," said Alan McQuaid, chief economist with Bloxham Stockbrokers .

"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 remain subdued in our view, severely hampering the recovery prospects for the economy as a whole in the process," he added.