Financial lending falls again

Lending to businesses and households by Irish financial institutions continued to decline in July, and at a faster pace than in the previous month, statistics from the Central Bank show.

Lending to non-financial corporates declined by 3 per cent in the year ending July 2010, following a revised annual decline of 2 per cent in June.

Longer-term loans saw a particularly steep contraction with loans to the non-financial corporate sector with an originally maturity of over five years, falling 11. 6 per cent on an annual basis. There was a greater provision of shorter term credit by Irish banks to businesses. Loans up to one year maturity - which includes the use of short-term facilities such as overdrafts - grew on average by 4.4 per cent in the three months ending July 2010.

In terms of lending to private households, the annual rate of change in loans to households was -4.7 per cent in July, following a revised decline of 4.5 per cent in June.

Lending for house purchase was 1.6 per cent lower on an annual basis in July, compared to minus 1.5 per cent in June, while lending for consumption and other purposes was down 15.4 per cent compared to a fall of 14.9 per cent in June.

The monthly net flow of non-financial corporate loans remained positive in July 2010 for short-term loans, but this was more than offset by a significant negative flow of loans at medium to long term maturities.

On the deposit side, the figures show that the recent trend which has seen Irish citizens save in response to the economic downturn may have come to a halt. The July data shows that deposits by the Irish resident private sector declined by 0.2 per cent on a year-to-year basis in July 2010, reversing a trend of positive annual growth rates since October 2009.

Alan Mc Quaid of Bloxham said there was "very little good news" in the figures, with the annual rates of decrease for the main loans to the household sector continuing to rise in July. He said there was no sign that the trend will change any time soon.

"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."