Lending falls further in January


Private-sector credit (PSC) fell in January as mortgages were hit by bad debts and lending to firms also fell.

The Central Bank's monthly report said PSC declined by €3.2 billion during the month, mainly due to underlying transactions such as repayments exceeding draw-downs. This is contrast to most of 2009, when the stock of credit fell as a result of valuation effects.

The latest decline brings the annual rate of change in headline PSC to -7.1 per cent. Just over half of the decline was attributed to valuation effects, including loan writedowns, increased bad-debt provisions and the strengthening of the euro against other major currencies throughout the year. When valuation effects were removed from the figures, PSC declined by €11.2 billion in the 12 months ending January 2010, a fall of 3.1 per cent.

The decline in lending to companies was more pronounced in January 2010, with the adjusted figures showing credit to non-financial corporations fell by 4.3 per cent in the year ending January. The annual decline in December was 3.1 per cent, while November recorded a fall of 2.7 per cent.

Household credit was also down, falling 2.2 per cent compared with January 2009. Residential mortgage lending outstanding fell by €269 million during the month, leading to an annual rate of decline of -0.7 per cent. By the end of January, the value of mortgages outstanding was Mortgages outstanding were €147.4 billion.

Meanwhile, the level of debt on credit cards was also declining, the Central Bank said, with a year on year fall of 1.3 per cent. Repayments outstripped new spending by €83 million in January, and combined with the fall in mortgages outstanding, led to a a reduction of 0.5 per cent in total household credit during the month.

The Central Bank said the acquisition of loans by the National Asset Management Agency (Nama) would impact the data significantly, with the expected write-downs of loans associated with the transfer of toxic debt to the State's "bad bank" not all reflected in the current numbers.