Construction, manufacturing loans fall most - Central Bank

LENDING TO most sectors of the economy remains in decline, with loans to the construction and manufacturing sectors falling the most in the third quarter of the year, according to new figures from the Central Bank.

A breakdown of private sector credit from the bank shows that lending to the construction sector in the third quarter fell €2.4 billion, down 12.6 per cent on the second quarter. Lending to the beleaguered sector was down 28 per cent, or €6.3 billion, year on year. Manufacturing also continues to be among the hardest-hit sectors, with a 17.6 per cent or €1.6 billion year-on-year decline in lending, and a 3.5 per cent, or €271 million, quarterly decline.

However, the flow of credit to the mining and quarrying sector, which is down almost 19 per cent year on year, stabilised in the third quarter.

The other sectors to show quarter-on-quarter declines in credit include wholesale and retail, agriculture and forestry, fishing, hotels and restaurants, and transport, storage and communications. There was a quarterly rise in credit to the education and electricity, gas and water supply sectors.

Lending to property-related sectors fell by €3.8 billion during the third quarter, falling 9 per cent year on year, the Central Bank said. Lending to the non-property, non-financial business sectors increased during the third quarter by €215 million, or 0.4 per cent, following three quarter-on-quarter declines.

The Small Firms Association (SFA) said the ongoing declines in credit reflected its view that credit criteria used by banks remained onerous. “I think there are huge difficulties to be resolved and at the core of it is this word ‘viability’,” said Patricia Callan, director of the SFA. “Our view is that the risk assessment by the banks has swung too far”

Ms Callan, a member of the Department of Enterprise, Trade and Employment’s credit supply clearing group, said there should be as much pricing transparency in business lending as there is in consumer lending.

Ms Callan said the SFA wanted the business banking sector to evolve beyond reliance on debt finance. Investment in small firms by venture capitalists and “angel networks” – private investors who specialise in financial assistance and mentoring to start-up firms – are “very underdeveloped” in Ireland, she said, “partly because owner-managers don’t want to give up a share in their business but also because debt was so readily accessible in the past”.