Irish fastest in EU at reducing debt but remain in arrears

Irish households have reduced debt as a proportion of disposable income more than any other state in the European Union over the past 12 months, but they remain the fourth most indebted in the bloc.

The Central Bank’s financial accounts for the third quarter of 2016 show household debt continued to fall, declining by €900 million to €145.3 billion. Per capita, household debt stood at €31,096.

The decline in debt over the quarter largely reflected net repayments of loans with other financial intermediaries (€600 million), and monetary financial intermediaries (€100 million).

Household debt has declined every quarter since its peak of €203.7 billion in the third quarter of 2008. Since then, it has fallen by 28.7 per cent.

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Indicators of household debt sustainability improved during the period. Debt as a proportion of disposable income fell from 147.8 per cent to 144.8 per cent, a decline of 69 percentage points from its peak of 213.9 per cent in the last quarter of 2009.

Reflected

The fall in the third quarter of 2016 reflected both the reduction in debt, as well as growth in annualised disposable income of 1.4 per cent. Debt as a proportion of total assets fell from 18.4 per cent to 17.8 per cent.

Though Irish households’ ratio of debt to disposable income has fallen significantly over recent years, it remains high relative to other European countries.

With a debt to disposable income ratio of 144.8 per cent, Irish households are the fourth most indebted in the EU despite recording the largest decline in the indicator year on year.

Household net worth increased by 3.9 per cent over the quarter to reach €661 billion. Household net worth per capita now stands at €141,427.

The increase in net worth was mostly driven by a rise in housing assets (€18.4 billion). This was largely due to rising house prices over the quarter.

Financial assets also rose (€5.5 billion), largely reflecting an increase in the value of insurance technical reserves (€2.6 billion) and increased holdings of currency and deposits (€1 billion). Household liabilities fell by €1.2 billion.

Domestic economy

Separately, net lending by domestic sectors amounted to €4.5 billion, its highest level since the beginning of the Central Bank’s series.

While financial corporation net borrowing increased, this was more than offset by a rise in net lending by non-financial corporations (NFCs). Net lending by the domestic economy increased significantly over the year ending Q3.

Private sector debt as a per cent of GDP fell to 287 per cent, a decrease of 29.9 percentage points over the quarter. This fall was driven by a reduction in NFC debt over the period.

It should be noted that private sector debt in the Republic is significantly influenced by large multinational corporations and that restructuring by these entities has resulted in extremely large movements in Irish private sector debt, particularly from 2014 onwards.

The figures also show that Government debt rose by €3.9 billion, or 1.7 per cent, to €235.1 billion during the quarter.