Lending to firms flatlines in February as interest rate hikes hit

The headquarters of the European Central Bank. Photo: Andreas Rentz/Getty Images

Jon Ihle

Bank lending to businesses was broadly flat in February as European Central Bank (ECB) rate hikes worked their way through the financial system, according to new Central Bank data.

Net lending to non-financial corporations (NFCs) was €184m, a slight increase of €19m compared with January. On an annual basis, NFC lending was €1.8bn or 5.9pc higher year-on-year.

While the annual increase was an improvement over January, the growth trend since October has been generally weakening as the ECB has rapidly raised rates to counter the highest inflation in four decades.

Household borrowing is on a downward trend, as well. Net consumer lending saw a small decline of €5m in February, following two months of positive net flows, although mortgage lending grew. On an annual basis, however, drawdowns exceeded repayments by €329m, or 2.9pc.

Nonetheless, Irish credit flows still showed a much stronger economy than is evident in the rest of the eurozone.

Monthly eurozone bank lending data released by the ECB on Monday showed how monetary tightening is beginning to effect the economy.

Firms in the common currency area experienced small negative growth for borrowing for the fourth consecutive month at just below 0pc. For households, monthly growth rates were still positive but only barely. Credit growth for consumers has also been on a downward trend and is hovering at just 0.1pc.

However, strong balance sheets with ample savings for both Irish businesses and households suggest the economic impact of reduced credit appetite is likely to be limited.

Deposits from non-financial firms increased by €1.1bn in February, reversing the decrease recorded in the previous month. In annual terms, deposits increased by €6.1bn or 8pc. This compares to the peak growth rate of 13.6pc from early 2022.

Household deposits increased by €188m. In annual terms, net household deposits increased by over €6.8bn, at 4.8pc the lowest annual increase since the end of 2019.