Steep decline in foreign lending by Irish banks

FOREIGN LENDING by Irish banks fell 18.4 per cent, or €34.5 billion, in the second quarter of the year, as lenders sharply reduced their international business.

At the end of June, the domestic banks had foreign claims of €150 billion, figures from the Central Bank show. It said the reduction was expected in light of the downsizing and disposal of Irish banks’ operations abroad.

“This trend is likely to persist with the continuing downsizing and retrenchment into the Irish market by the domestic banks.”

Some of the decline was accounted for by a reclassification of intercompany lending, leaving the underlying decline closer to €28.5 billion, it added.

Britain and Northern Ireland accounted for the bulk of foreign claims by Irish banks, with almost €102 billion in the second quarter, down almost €14 billion or 12 per cent on the first three months of the year.

The biggest percentage lending decrease was in Poland, where Irish bank lending fell 98 per cent to just €265 million.

This follows the completion of the sale of AIB’s Polish business, Bank Zachodni, to Spanish bank Santander.

There were also steep declines in lending by Irish banks in Germany, France and Spain. In Germany, Irish bank lending fell by more than €1 billion, a decline of 26 per cent, while in France, there was a 20 per cent or €1.2 billion drop.

In the US, which accounts for the second-largest amount of foreign claims by Irish banks, lending fell by almost 15 per cent to €16.7 billion, down €2.9 billion on the previous quarter.

Lending by Irish banks to the private sector came close to €124 billion in the quarter, down 19 per cent. Lending to credit institutions fell by almost 8 per cent to €20.3 billion, while lending to the public sector shrank 27 per cent to €8.9 billion.