Lending to Irish firms down 4.5% in April

Lending to Irish businesses continued to fall in the year to April, but the pace of decline moderated, the Central Bank said today.

Credit to non-financial corporations fell 4.5 per cent on an annual basis in April, compared to 4.6 per cent in March. This excludes the impact of loans transferred to the National Asset Management Agency and valuation effects.

The net flow of credit transactions during the month was -€109 million, or 0.1 per cent, compared with -€1.3 billion in March and -€842 million in February as repayments exceeded new lending.

The amount of credit outstanding to businesses, excluding banks, on the balance sheets of Irish financial institutions stood at €134.2 billion at the end of last month, as the transfer of loans to Nama and an increase in impairment provisions reduced the total.

Loans with a book value of just under €4 billion at the end of March 2010 were transferred to Nama in April, along with loans of €347 million issued by non-resident offices of the participating credit institutions.

Meanwhile, household credit was down 1.8 per cent during April, with the net flow of household credit transactions at -€346 million. This compares with a revised decline of 1.9 per cent in March, when transactions were -€466 million.

Residential mortgage lending outstanding fell by €348 million during April, a fall of 1.6 per cent for the year.

Meanwhile, credit card debt rose slightly during the month, but repayments on personal cards were about €11 million higher than new spending.

Bloxham economist Alan McQuaid said the figures supported concerns that a lack of credit could hinder Ireland's economic recovery.

"Even allowing for muted demand for businesses for bank credit, the latest lending data maintain concern that the Euroland/Irish economic recovery could be held back over the coming months by a significant number of companies being unable to get the credit that they need," he said.

"On the positive side, the data support the view that the European Central Bank will keep official interest rates on hold at 1 per cent for the remainder of this year, with no rate hike likely until the first half of 2011."

The Professional Insurance Brokers Association (PIBA) said the figures were worrying and indicate that "normality is some way off".

It called on the Government to raise the minimum lending requirements set for the banks.

"The reality is that people are having great difficulty in acquiring mortgages. And those hardest hit are first-time buyers," said PIBA's mortgage services director Rachel Doyle.

"The reality is that banks are cherrypicking in a very crude way and that is having a damaging effect on everyone, including the banks themselves."

Meanwhile, the data also revealed the overnight money market interest rate (Eonia) fell marginally by 6 basis points during the month. Unsecured rates over longer maturities were relatively unchanged, and the spread between secured and unsecured inter-bank borrowing rates were also stable.

Monetary financial institutions in Ireland accounted for €195.5 billion of the euro area’s broad money supply, or M3, in April, an annual rise of 1.4 per cent.