Monday 24 October 2016

Banks now hold €2.8bn more in Irish household deposits than loans

Published 30/01/2016 | 02:30

Potential housebuyers are saving because of Central Bank rules, says Investec’s John Cronin. Photo: Aidan Crawley/Bloomberg
Potential housebuyers are saving because of Central Bank rules, says Investec’s John Cronin. Photo: Aidan Crawley/Bloomberg

Irish banks now hold more household deposits on their books than household loans for the first time in close to 20 years, according to the Central Bank.

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And it's a trend that has been going on since last summer.

Data released yesterday shows that Irish households were net funders of the Irish banking system for the sixth consecutive month in December.

This means that deposits held by Irish banks from households have exceeded on-balance sheet loans owed by households since July.

"This is the first time the value of outstanding loans fell below the level of deposits held since the late 1990s," the Central Bank said.

Irish banks held €2.8bn more in household deposits than loans in the month.

Dame Street said this was a sharp reversal of the position in early 2009, when household loans outstripped deposits by a massive €53.5bn.

John Cronin, of specialist bank Investec, said a milestone may have been reached, but it's a continuation of a trend that has been going on for some time.

"You're seeing it at global level as well," Mr Cronin said.

"There's a much greater trend towards savings but I don't think it's a long term structural change in propensity to spend or invest in non-cash assets. I think it's just a current phenomenon.

"There are three key factors underpinning the current trend towards household savings in the Irish market.

"Firstly, younger potential house-purchasers are saving at the moment because of the new Central Bank macroprudential regulations; secondly, confidence is still fragile following the severe recession; and, last but not least, household deleveraging continues apace - particularly among higher income households.

"Let's not forget that household debt has only fallen back to around 165pc of GDP from 210pc of GDP at its peak."

The Central Bank noted similar points. It said the shift in the loan/deposit ratio reflected the fact that households were still focused on paying down debt, rather than taking out new borrowings, and recent deposit accumulation by households.

Mr Cronin said new lending numbers are actually up across the banks. "Households will put that money to work in the future. Leaving it sitting in cash is not a long-term option," he said.

"New lending numbers are up significantly on a year-on-year basis across all their books, but it's off a low base. So the percentage growth is actually pretty healthy."

The Central Bank also stated that in December, mortgage draw-downs marginally exceeded loan repayments, recording a net increase of €28m.

Irish Independent

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