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News : Irish Last Updated: Feb 29, 2012 - 1:07 PM

Irish bank lending to consumers and businesses fell again in January; Domestic private sector bank deposits also down
By Finfacts Team
Feb 29, 2012 - 1:04 PM

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The Central Bank said today that  level of Irish bank lending to consumers and businesses fell again in January and Irish resident private sector bank deposits also dropped 7% on an annual basis.

Loans to households continued to decline during January 2012, and were 3.9% lower on a year-to-year basis, following a decline of 3.8% for the year ending December 2011. Lending for house purchase was 2.4% lower on an annual basis in January 2012, while lending for consumption and other purposes declined by 8.2% over the same period.

Lending to households declined by €690m during the month of January, based on underlying transactions, following a net monthly flow of minus €65m in December. Developments in January were largely driven by a decline in loans for consumption purposes of €394m, while loans for house purchase and loans for other purposes also decreased by €216m and €80m, respectively.

The monthly net flow of loans to households averaged minus €373m in the three months ending January 2012, which consists of an average net flow of minus €133m in loans for house purchase, minus €184m in loans for consumption purposes, and minus €56m in lending for other purposes.

Lending to the non-financial corporate (NFC) sector declined by 2.2% in the year ending January 2012, following an annual decline of 1.6% in December 2011.

On a monthly basis, loans to NFCs decreased by €548m during January 2012, following a decrease of €665m in December. The monthly net flow of loans to NFCs averaged minus €391m in the three months ending January 2012, compared with an average of minus €359m in the three-month period up to end-December 2011.

Deposits: Irish resident private-sector deposits were 7% lower on an annual basis at end-January 2012, compared with a decline of 7.3% over the year ending December 2011. Deposits from households were 3% lower on an annual basis in January while deposits from NFCs declined by 9.1%. Deposits from ICPFs (insurance companies and pension funds) and OFIs (other financial intermediaries) fell by 12.6% over the same period.

There was a decrease of €482m in Irish resident private-sector deposits during the month of January. This largely reflected developments in the NFC sector, where deposits fell by almost €1.1bn during the month. Household deposits fell by €57m, while deposits from OFIs and ICPFs increased by €654m.

Overnight deposits fell by €1.1bn during January 2012, and this was reflected across almost all private depositor sectors. Household sector overnight deposits fell by €463m during the month, while overnight deposits from NFCs and OFIs fell by €454m and €176m, respectively. The ICPF sector registered a modest increase of just €14m in overnight deposits during January.

For the household and OFI sectors, the reduction in overnight deposits may partly reflect a shift into longer-term deposit products. Household deposits with agreed maturity up to two years increased by €443m during the month of January, while OFIs and ICPFs also increased their deposits in this category, by €515m and €370m, respectively. NFC deposits with agreed maturity up to two years fell by €589m during the month.

Private-sector deposits from non-residents increased by just under €2bn during January 2012, predominantly reflecting developments in the IFSC-based banks. This development included an increase of €582m in deposits from other euro area private-sector residents during the month, while private-sector deposits from non-euro area residents increased by just under €1.4bn. Total non-resident private-sector deposits were 6.5% lower on an annual basis at end-January 2012, with deposits from other euro area private-sector entities 4.2% lower, and those from non-euro area residents 8% lower.

ECB: Credit institutions’ borrowings from the Central Bank as part of Eurosystem (European Central Bank) monetary policy operations fell by €13.5bn in January 2012, due to a decline in IFSC banks’ recourse to refinancing operations. The outstanding stock of borrowings from the Eurosystem by Irish resident credit institutions amounted to €94.9bn at end-January. Domestic market credit institutions2 accounted for €71.3bn of this total outstanding stock, following a decrease of €734m in their recourse to Eurosystem refinancing operations during the month.

Dermot O'Leary, chief economist at Goodbody, comments:

The latest statistics from the Irish Central Bank reveal that the trend of stable deposits largely continued into January. It remains to be seen whether uncertainty surrounding a referendum will change that trend.

Household deposits largely flat in January -
In January, Irish private sector deposits fell by €482m. However, the annual rate of decline in Irish private sector deposits fell to 7.0%, from 7.3% in December 2011 and its slowest pace of decline since October 2010. Within these trends, we prefer to focus on trends in the household and non-financial sectors. In this regard, household deposits were effectively flat in January (-€57m), with the annual rate of decline slowing to 3.0%, its slowest pace of decline since October 2010. Non-financial corporate deposits on the other hand fell by €1bn, with the annual rate of decline accelerating to -9.1% (from -6.0%). There may be some seasonal issues associated with the fall in the month based on historical trends.

Increase in covered bank deposits primarily due to UK operations -
It is important to note that these trends refer toresidentdeposits inallfinancial institutions in Ireland. In a separate release this morning, the Department of Finance has published a consolidated set of numbers for the covered banks only. This shows that deposits increased by €200m in January, the fifth consecutive increase. The data show that since August deposits in the covered banks have grown from €140bn to €147bn. However, it is worth noting that almost all of the growth in deposits in the covered banks in the second half of 2011 came from growth in deposits in the UK operations of the Irish banks (mainly Bank of Ireland’s joint-venture with the UK Post Office). The January data also include the deposits emanating from sale of €650m Northern Rock Ireland to Permanent TSB. Taking into account seasonal factors the Department of Finance state that deposits in the covered banks were stable in January.  

Total central bank support for covered banks at €112bn -
In terms of liquidity from central bank authorities, the total amount of support for covered banks now stands at €112bn, up modestly from December as a result of an increase in ELA support from the Irish Central Bank. However, this is down from the peak of €156bn a year ago. Bank of Ireland has already stated that it took €7bn in LTRO from the first operation, but this was simply a transfer from shorter-term operations. Irish banks are likely to have been significant participants in the €530bn provided earlier today by the ECB in its second operation.

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