Lending to firms continues to fall

Lending to businesses continued to decline in February, new figures from the Central Bank showed today.

Credit to non-financial corporations (NFCs) fell by 3.7 per cent in the year to February 2010, as repayments exceeded draw-downs, while some of the fall was also due to the securitisation of NFC loans. The decline follows revised reductions of 1.9 per cent and 3 per cent in December and January.

The figure has been contracting on an annual basis since July last year.

Headline private sector credit (PSC) fell to -7.3 per cent in February, with the Central Bank attributing about half of this decline to valuation effects such as increased bad-debt provisions and loan write-downs. When these factors were eliminated from the figures, the underlying stock of PSC was 3.5 per cent lower.

Household credit was also down, falling 2.4 per cent on an annual basis in February 2010. Mortgages continued to fall, with outstanding loans declining €156 million during February. This brings the annual rate of decline in the sector to -0.9 per cent.

The change in credit card debt turned positive in the year to February, rising 0.5 perncet. However, this was mainly attributed to a significant reduction in debt on cards early last year. Repayments still exceeded new spending by some €26 million in the month.

Independent brokers' network PIBA said the decline in credit was "very worrying" for jobs and the economy and called on the Government to raise the minimum lending requirements it has set for the banks.

"Lending for home mortgages has fallen by €156 million in February alone, at a time when there is evidence of demand from first-time buyers in particular. There is no hiding place for the banks. These figures defy bank propaganda claiming that they are lending to small businesses and first-time buyers," said Rachel Doyle, director of PIBA Mortgage Services.

"The banks cannot be relied upon to act responsibly; they will do the absolute minimum required of them by the Government. We believe the Government, and the Minister for Finance in particular, need to act to up their minimum requirements."