Access to funds set to tighten as loans to households and businesses fall

LENDING to Irish households and businesses fell in the year to the end of September and the European Central Bank has said it expects access to funds to tighten further in the coming months.

Figures released by the Central Bank of Ireland yesterday show that loans to Irish households were 3.7 per cent lower in the 12 months to September 30th.

The monthly rate of decline was unchanged in September, with an €88 million fall in lending during the month.

Lending for house purchases was 2 per cent lower on an annual basis in September, and loans for consumption and other purposes fell by 8.4 per cent during the same period, the bank said.

Loans for consumption and other purposes fell by €99 million on a monthly basis in September, while loans for house purchases increased by €11 million in the year to September.

Lending to Irish resident non-financial corporations was down 4.2 per cent in the year to the end of September, compared to a decline of 3.2 per cent recorded a month earlier.

Loans to these businesses decreased by €358 million during September on a monthly basis, following on from a fall of €234 million a month earlier.

An ECB survey published yesterday found that lenders across the euro zone had made it harder for firms to borrow in the third quarter.

The ECB expects loan requirements to tighten further in the coming months, even though it found funding constraints on banks had eased.

A net 15 per cent of euro zone banks that took part in the ECB survey tightened their criteria for firms to borrow in the third quarter, up from 10 per cent in the second quarter.

“Factors driving the tightening credit standards are less related to supply issues, such as banks’ capital position or access to market financing. It’s increasingly a demand-side story,” Nomura economist Nick Matthews said, referring to the weak economy.

“Banks are looking at the general economy and the risks there,” he said. The survey noted an improvement in the access of banks to retail and wholesale funding across all categories.

It said conditions would likely improve further before the end of the year.

“Compared with the previous quarter, the impact of the sovereign debt crisis on banks’ credit standards receded somewhat in the third quarter of 2012,” the ECB said.

The Central Bank of Ireland figures also showed Irish resident private-sector deposits increased at an annual rate of 1.8 per cent in September, which Goodbody chief economist Dermot O’Leary noted was the fastest pace of growth since May 2010.

The figures show deposits from households were 0.7 per cent higher on an annual basis, while deposits from insurance corporations and pension funds and other financial intermediaries increased by 6.4 per cent.

Deposits from non-financial corporations fell by 1.2 per cent over the same period.

There was a month-on-month decline of €943 million in Irish resident private-sector deposits during September.

Mr O’Leary said this decline could largely be explained by “the volatile financial sector and what appears to be a seasonal decline in deposits from non-financial corporations, possibly due to the end of the quarter”.