Spurt in non-mortgage lending linked to car sales

Non-mortgage lending to Irish households rose again last month, marking the first consecutive month-on-month increase since 2008, with one expert linking the credit growth to car sales.

The Central Bank’s latest money and banking statistics show loans for consumption purposes, which excludes house purchases, increased by €142 million in March.

This was the largest rise since January 2011, and followed an increase of €27 million in February.

On an annual basis, lending for consumption and other purposes fell by 5 per cent, however, suggesting the credit market - in terms of supply and demand - remains weak.

The figures show overall loans to households, which includes mortgages, decreased by 3.2 per cent in the 12 months to March.

Loans for house purchase, which account for 82 per cent of total household loans, declined at an annual rate of 2.7 per cent.

In terms of loans for house purchase, repayments exceeded drawdowns by €2.2 billion over the 12 months to the end of March.

With overall credit continuing to contract on annual basis, it is difficult to assess the impact of the Central Bank’s new lending restrictions, introduced in January.

On the other side of the ledger, Irish household deposits with banks fell by €32 million in March, but were €546 million or 0.6 per cent than a year earlier, with inflows into overnight deposits in the past twelve months recorded.

Merrion economist Alan McQuaid said: “Last year’s strong GDP numbers and the forecasts for this year would suggest that the private-sector credit figures don’t matter too much, but from a long-term perspective a greater level of credit will need to flow into the economy to maintain the positive momentum we’ve seen over the last year or so.”

“However, the fact is that many Irish consumers-households are still burdened with a huge level of outstanding debt and are in no hurry to add to that load, though there do appear to be some chinks of light appearing, as evidenced by the loans for consumption purposes data,”he said.

Mr McQuaid suggested the spurt in non-mortage lending might be linked to bumper car sales, which appear to be fronting the slow recovery in retail.

He also said the new mortgage lending rules from the Central Bank are likely to dampen demand-supply of credit further, particularly for house purchase, suggesting that overall bank lending will remain subdued in 2015.