The Central Bank reported today that the rate of fall in Irish lending / credit to households and business accelerated in July. Deposits by Irish resident private sector also fell.

The Central Bank said that the annual rate of change in loans to households was minus 4.7% in July 2010, following a revised decline of 4.5% in June. Lending for house purchase was 1.6% lower on an annual basis in July 2010 (minus 1.5%, June), whereas lending for consumption and other purposes had declined by 15.4% (revised minus 14.9%, June).

The net flow of household lending during the month of July 2010 was minus €716 million. The monthly net flow of loans to households averaged minus €821 million in the three months ending July 2010, which consists of an average net flow of minus €138 million in loans for house purchase, minus €399 million in consumption loans and minus €283 million in lending for other purposes.

Lending to the non-financial corporate (NFC) sector declined by 3% in the year ending July 2010, following a revised annual decline of 2% in June. Longer-term loans continue to have the most significant contraction; with NFC loans with an original maturity of over 5 years falling 11.6% on an annual basis in July. The decline in longer-term loans is in contrast to the increase in loans up to one year maturity, which includes the use of short-term facilities such as overdrafts. The annual rate of growth in NFC loans of up to one year maturity averaged 4.4% in the three months ending July 2010.

The monthly net flow of NFC loans remained positive in July 2010 for short-term loans, but this was more than offset by a significant negative flow of loans at medium to long term maturities. In aggregate, NFC loan repayments were approximately €1.4bn greater than draw-downs during the month.

Credit institutions holdings of debt and equity securities issued by the Irish private sector continue to grow strongly and now account for over 16% of total credit (10.8% in July 2009). This has been particularly related to the increase in credit to the "other financial intermediaries", or OFI sector, which includes, among others, special-purpose vehicles (SPVs). The most recent growth in credit to this sector has been driven by credit institutions’ holdings of debt securities issued by the toxic property loans agency  NAMA's SPV in purchasing land and development loans. Prior to this the growth was driven by increased financing of SPVs, created in many cases for the purpose of securitising loans originated by the same credit institutions. Holdings of debt securities issued by Irish resident OFIs, including those issued by the NAMA SPV, grew by 46.8% in the year ending July 2010.

Loans with an end-June 2010 book value of €.8bn were transferred to NAMA in July from the resident offices of participating credit institutions, accompanied by loans with an approximate end-June book value of €70 million from their non-resident offices. The credit institutions involved received securities with a value of just under €.4bn from the NAMA SPV in return.

The Central Bank reported that deposits by the Irish resident private sector declined by 0.2% on a year-to-year basis in July 2010, reversing a trend of positive annual growth rates since October 2009. The annual rate of change in deposits from Irish households remained negative in July 2010, at minus 1.9%. Deposits from Irish NFCs fell by 9.2% on an annual basis in July, compared with an increase in OFI and insurance corporations and pension funds (ICPFs) deposits of 12% over the same period.

The net monthly flow of Irish resident private sector deposits averaged minus €.4bn in the three months ending July 2010, after averaging a revised minus €915 million in the three months ending June 2010. There has been a more noticeable decline in overnight deposits generally in recent months, whereas the contraction in term deposits up to 2 years maturity, which had previously been significant, has slowed somewhat. The net monthly flow of overnight deposits averaged minus €77 million in the first seven months of 2010, compared with minus €31 million over the same period in 2009. Meanwhile, the net monthly flow of deposits with agreed maturity up to 2 years averaged minus €88 million in the first seven months of 2010 compared with minus €30 million over the same period in 2009. There continues to be positive monthly flows into short-term savings deposits (redeemable at notice up to 3 months).

Private sector deposits from other euro area residents rose by 2.5% in the year ending July 2010, whereas those from non-euro area residents were 17.1% lower. The underlying net monthly flow of non-resident private sector deposits, averaged minus €182 million in the three months ending July 2010.

Credit institutions’ borrowings from the Central Bank as part of Eurosystem monetary policy operations declined by €0.9bn in July 2010, to €9.5bn. Of this, approximately €8.3bn was with respect to domestic market credit institutions2.