IRISH PEOPLE are significantly reducing their personal debt by paying down items such as credit card bills, mortgages and other loans, according to the latest figures from the Central Bank.
For the first time in almost 20 years the annual growth rate in the value of outstanding mortgages has fallen. This is partly due to the introduction of stricter lending criteria being applied by banks. It means that people who wish to buy a home are finding it more difficult to get mortgage approval.
The figures indicate that as a result of the recession, consumers are paying off more debt than they are borrowing. For nine of the 11 months of 2009, total repayments on credit cards has exceeded new spending, according to the Central Bank figures for November, published yesterday.
The value of all outstanding mortgages at the end of the month was €147.7 billion, with the annual rate of change in mortgage lending turning negative for the first time since the statistics series began in 1990.
The rate of change was minus 0.1 per cent. The equivalent figure at the end of October showed growth of 0.2 per cent.
On non-housing related household credit, the figures show a continuing decline during November, with this category of debt down 21 per cent on its value a year earlier.
Outstanding indebtedness on personal credit cards fell marginally on a year-on-year basis, ending 0.6 per cent lower at the end of November 2009, compared with a year earlier.
The number of cards also fell during the month, the figures show. At the end of November there were 2.178 million personal cards in existence, a drop of 10,000 from October. The number of business credit cards remained constant, at 158,000. There were 43,000 fewer credit cards at issue at the end of November compared to a year earlier.
The value of overdrafts fell by €81 million during November.
So-called “valuation effects”, which include exchange rate movements, write-downs of loans, and increased provisions for bad debts by financial institutions accounted for about half of the €2.1 billion drop in the level of overall private sector credit (PSC) that occurred during the month. The valuation effects during November “mostly arose” from increased levels of bad debt provision by credit institutions, with these effects accounting for slightly more than half of the decline.
However, the Central Bank statistics do not break down the individual contribution of each of these effects, and there is no figure given for bad debt provisions, or write-downs by Irish banks.
Last month AIB raised its forecast for bad debts for this year by €1 billion to €5.3 billion, primarily due to higher losses on development and property-related loans moving to the National Asset Management Agency (Nama). Bank of Ireland also expects its loan losses for the three years to March 2011 will be €6.9 billion.
The fall in private sector credit in November follows a fall of €2.3 billion that occurred during October. Total private sector credit at the end of November was €373.7 billion.
Apart from the valuation changes, the drop in credit, including mortgages, arose from more debt being paid off than was taken out.
The overall annual rate of change in private sector credit fell further in November, to minus 5.2 per cent.
When valuation effects are taken into account, the underlying stock of PSC was approximately 1.7 per cent lower in November 2009 when compared with a year earlier.
Separately, an indicator of the Irish economy’s competitiveness versus others in the euro area rose marginally during November.
The harmonised competitiveness indicator, which is included in the Central Bank statistics, scored 122.67 in November, a slight fall on the October figure of 123.04. The equivalent figures taking producer prices into account were 116.07 and 116.31.
However, year-on-year the indicator points towards a loss in competitiveness. In November 2008 the figures, when consumer and producer prices were taken into account, were respectively 119.57 and 108.20.