Recent trend of saving over spending may be at an end

THE RECENT trend that has seen Irish citizens save rather than spend in response to the economic downturn may have come to a halt, with Central Bank data showing that deposits declined by 0.2 per cent on an annual basis in July – the first time since October last year.

Deposits by the Irish resident private sector declined by 0.2 per cent on a year-to-year basis in July 2010 according to the monthly banking figures, reversing a trend of positive annual growth rates since October 2009.

Private sector deposits from other euro area residents rose by 2.5 per cent in the year, but those from non-euro area residents fell by 17.1 per cent.

Meanwhile, the lending climate for households and businesses remained weak, with the private sector credit figures showing that lending to businesses and households by Irish financial institutions continued to decline in July, and at a faster pace than in the previous month. Lending to non-financial corporates declined by 3 per cent in the year ending July 2010, following a revised annual decline of 2 per cent in June.

Longer-term loans saw a particularly steep contraction with loans to the non-financial corporate sector with an original maturity of over five years falling 11.6 per cent on an annual basis.

There was a greater provision of shorter term credit by Irish banks to businesses. Loans up to one-year maturity – which includes the use of short-term facilities such as overdrafts – grew on average by 4.4 per cent in the three months ending July 2010.

In terms of lending to private households, the annual rate of change in loans to households was -4.7 per cent in July, after a revised decline of 4.5 per cent in June.

Lending for house purchases was 1.6 per cent lower on an annual basis in July, compared to minus 1.5 per cent in June, while lending for consumption and other purposes was down 15.4 per cent compared to a fall of 14.9 per cent in June.

Deposits from Irish non-financial corporates fell by 9.2 per cent on an annual basis in July, compared with an increase in deposits from other financial intermediaries and insurance corporations/ pension funds of 12 per cent over the same period.

The Central Bank said that there has been a more noticeable decline in overnight deposits generally in recent months, although the contraction in term deposits up to two-years maturity, which had previously been significant, has slowed somewhat.

The net monthly flow of overnight deposits averaged minus €777 million in the first seven months of 2010, compared with minus €131 million over the same period in 2009.

Meanwhile, the net monthly flow of deposits with agreed maturity up to two years averaged minus €288 million in the first seven months of 2010 compared with minus €830 million over the same period in 2009.