Irish households continue to pay down debt, put money on deposit

Irish consumers continue to save and shirk new loans in favour of paying down existing debt, leading to a significant change in the Irish banking market.

Figures from the Central Bank show that household lending slumped by 3.5 per cent in April, compared with the same period in 2015, as mortgage loans fell by € 176 million during the month, or by 2.3 per cent in the year. Households repaid € 1.8 billion more than was advanced in new loans.

And, despite plummeting deposit rates, Irish savers continue to favour the product, with some €577 million placed on deposit in April, boosting the annual figure by 2.9 per cent.

Alan McQuaid, economist with Merrion Stockbrokers, said that the lending data remains “a cause for concern”

“Households and businesses may still want to pay down out-standing debt which is fine. However, with the cost of funding remaining high, particularly compared with the Eurozone average, there is no incentive to take on new borrowings, which is a concern going forward,” he said, adding that if the economy is to grow to potential over the long-run, credit will need to flow “at a much stronger level”.

Notably, Irish households continue to be net funders of the Irish banking system, as household deposits held by Irish banks exceeded on-balance sheet loans issued to households in April for the tenth consecutive month. This means that banks continue to take in more on deposit than they are lending out, giving a loan to deposit ratio of 0.9 per cent.

“This continued decline in the loan-to-deposit ratio is a significant development which has not been seen since the late 1990s,” the Central Bank said.

Indeed banks now hold € 6.5 billion more household deposits than loans- back in early 2009 household loans exceeded deposits by € 53.5 billion.