Lending to private sector higher in January

LENDING TO the private sector picked up in January, with residential mortgages recording unseasonable growth compared to the moribund final quarter of 2008.

After a substantial decline of €9.1 billion in December, private-sector credit grew by €3.3 billion in January. However, the annual rate of increase of private-sector credit continued to decline, falling half a percentage point to 6 per cent, according to figures from the Central Bank.

Residential mortgage lending increased by €350 million in January. That equalled the net change for the entire final quarter of 2008 but the annual rate of growth in mortgage lending also continued to drop, hitting 5.4 per cent.

The latest sectoral breakdown of credit for December 2008 shows that lending to non-financial corporations continues to slow down, with the annual rates of increases in credit to significant sectors such as construction and real estate declining substantially.

The rate of private-sector credit growth in Ireland is now slightly less than the euro zone average.

“Not that long ago, at the height of the Celtic Tiger boom period, Irish private-sector credit growth was running at three times the rate of the euro land average,” said Alan McQuaid, economist at stockbrokers Bloxham.

Even if the ECB cuts rates next week, credit growth is likely to remain subdued for the time being, he said.

“Banks still seem reluctant to lend in the current environment, and consumers remain concerned about the rapidly deteriorating labour market conditions.”

Small business groups have urged the Government to put measures in place that encourage banks to resume lending to businesses. The Small Firms Association urged the Government this week to place the implementation of the EU’s Small Business Act at the heart of its recovery plan.

The Professional Insurance Brokers Association (Piba) said yesterday that the slight rebound in mortgage lending was the result of improving affordability for buyers due to falling house prices and lower interest rates.

While affordability is increasing for all new borrowers, lenders are fighting to secure the business of people with secure pensionable jobs, according to Piba chairman Jack FitzPatrick.

“While the housing market had grossly overheated, in the financial crisis that followed the pendulum has swung very far in the opposite direction. We need to move closer to a state of equilibrium.”

The Central Bank figures show that, after the Christmas increase in purchases on plastic, new credit card spending on personal and business cards during January fell below the €1 billion mark for the first time since April 2006.

The year-on-year increase in outstanding indebtedness on credit cards fell to 4.4 per cent in January. This rate of increase peaked at 19.6 per cent in March 2007.

Outstanding indebtedness on credit cards, including balances that may be paid in full at the payment due date, stood at just over €3 billion, down €62 million on December.