Credit drought picks up pace
The amount of credit in the economy keeps shrinking, with Friends First signalling once again this week that it plans to cease all lending in Ireland. The list of those withdrawing or sharply rationing credit grows by the week.
Step forward Bank of Scotland (Ireland), Postbank, Irish Nationwide, Anglo Irish, Friends First and ACC as just some of those not lending or lending less into the economy.
Clearly some lenders like Postbank, headed by Margaret Sweeney (right), were only doing minor lending through overdrafts and credit cards, but the others were substantial suppliers of credit during the boom.
Meanwhile, the burden to keep credit flowing continues to fall on AIB and Bank of Ireland, both of whom are trying to reduce their leverage.
Private sector credit declined by €3.2bn in January alone. It is easy to identify the decline in the supply of credit, much more difficult to plot is how far demand has slumped.
Nobody really has a fix on how many potential borrowers are staying away and nobody really has a fix on how many borrowers are being denied additional credit lines.
Clearly spending is down and deflation is rampant in the economy, hence lending is going to fall. This is leading economists to adopt a somewhat relaxed view about the supply of money.
But with the economy apparently poised to turn something of a corner in the second half, the huge withdrawal of credit is likely to become more of a problem, rather than less, later this year and in 2011.