Lending to households and companies fell in November, continuing the downward trend seen in recent months, as deposits continued to flow back into the Irish banking system.

The latest tranche of Central Bank figures showed lending to households declined by €264 million in the month of November, following a net monthly decrease of €515 million in October.

Figures released by the Central Bank of Ireland this morning show that loans to Irish households were 3.6 per cent lower in the year ending November 2012. This follows a decrease of 3.7 per cent for each of the previous three months.

Non-mortgage loans drove the November decrease as credit advanced for house purchases turned positive. There was an increase of €3 million in loans for house purchase, while loans for consumption and other purposes fell by €267 million for in the month.

Lending to Irish resident non-financial corporations (NFCs) declined by 3.9 per cent in the year ending November 2012. This follows a decrease of 4.2 per cent for each of the previous two months.

Meanwhile, private sector deposits increased 2.2 per cent year-on-year, slower than a 2.4 per cent rise in October. Deposits from Irish households were 1.4 per cent higher on an annual basis, while deposits from insurance corporations and pension funds and other financial intermediaries rose by 6.8 per cent.

However, deposits from Irish non-financial firms fell by 1.5 per cent over the same period. Private-sector overnight deposits decreased by €522 million in the month, largely reflecting developments in the non-financial corporate sector where deposits dropped by €467 million.

Separate data released by the Department of Finance at the end of last month showed that deposits at the covered institutions (AIB – including EBS; Bank of Ireland and Permanent TSB) including overseas subsidiaries fell marginally by 0.4 per cent to €154 billion in November after hitting a near two-year high in the previous month.

Although there has been some sign of improvement in the deposits side in the past few months, the ongoing underlying message from the central bank data is still one of overall weakness and difficulties in the banking sector, Merrion economist Alan McQuaid said.

"At the end of the day, the lack of available credit will severely hamper the overall recovery prospects for the economy as a whole, and keep the unemployment rate higher than it would otherwise be," he added.