Property related private sector lending accounted for 63 per cent of total Irish private sector lending in December 2009 while lending to manufacturing fell 20 per cent in the year.
The Central Bank said today that annual rate of change in private-sector credit (PSC) remained negative in Q4 2009, at minus 6 per cent. Approximately two-thirds of the decline in PSC is accounted for by non-transaction related valuation effects. These are mostly due to write-downs of existing credit arrangements and increased provisions for bad and doubtful debts. Excluding these valuation effects, the underlying stock of credit was 2.1 per cent lower on a year-to-year basis at end-Q4 2009. Fourteen of the fifteen economic sectors experienced lower annual rates of change in credit outstanding during the fourth quarter of 2009 than in the same quarter in 2008.
On a quarterly basis, PSC contracted by 4.2 per cent during Q4 2009 (1.1 per cent excluding valuation effects), compared with a quarterly decline of 3.3 per cent in Q3 2009. Survey evidence from the main credit providers suggests both reduced demand for credit and continued tightening of credit standards by lenders for business lending during the final quarter of 2009. Credit standards for lending to households were in general unchanged during Q4 2009, although credit demand by households is reported to have remained weak.
Credit provided to the financial intermediation sector, which includes lending to non-bank credit providers, insurance companies, pension funds, and special-purpose vehicles (SPVs), declined in Q4 2009 by €2.5 billion (minus 2.9 per cent) since the previous quarter. On a year-to-year basis, credit to the sector was relatively unchanged. Underlying this trend has been strong growth in credit to SPVs, which was almost entirely negated by a fall in credit advanced to other non-bank financial institutions.
Lending to the non-property non-financial business sectors experienced a significant decline with a fall of almost €2.1 billion, or minus 4.2 per cent, during Q4 2009. This was mainly due to falls in the manufacturing, non-real estate business services and wholesale/retail trade sectors, giving declines of €413 million, €431 million and €374 million respectively. This gives a decline of 11.3 per cent on a year-on-year basis in the credit to non-property non-financial business sectors, with a 20 per cent decline in the manufacturing sector for the year 2009. Lending to the wholesale and retail trade sector has fallen 12 per cent from its Q3 2008 peak, while lending to hotels and restaurants has declined by 10.9 per cent since its Q2 2008 peak.
The decline in lending to the property-related business sectors (construction and real estate activities combined) continued in Q4 2009, with a quarter-on-quarter decline of 3.1 per cent. Credit advanced to these sectors declined by €3.2 billion during the final quarter of 2009. Year-on-year credit outstanding to these sectors fell by 9.4 per cent. Both the annual and quarterly developments in lending to the construction and real estate sectors are mostly due to valuation effects, such as increased levels of bad debt provisions and write-downs of loans.
Total property-related lending fell on a quarterly basis by €3.6 billion in Q4 2009, bringing the year-on year decline to almost €11 billion. The year-on year change in property-related lending was minus 4.2 per cent in 2009, compared with an increase of 5.6 per cent in 2008. This is heavily influenced by the increased levels of bad debt provisions and write-downs of loans to the real estate and construction sectors in the past year.
