Dáil Éireann Debate, Wednesday - 18 April 2012
176 Deputy Tom Fleming asked the Minister for Finance his views on the latest figures released by the Central Bank which show that lending to both householders and businesses has continued to decline; and if he will make a statement on the matter. [18691/12]
View answerAs the Deputy is aware, the banking system restructuring plan creates capacity for the two Pillar Banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the next three years. SME and new mortgage lending for these banks is expected to be in the range of €16-20 billion over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013. The Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. Both have indicated that they have achieved their 2011 targets. The pillar banks are required to submit their lending plans to the Department and the Credit Review Office (CRO) at the beginning of each year, outlining how they intend to achieve their lending targets. The banks also meet with the Department and the CRO on a quarterly basis to discuss progress.
I would accept that the amounts sanctioned by the banks are but one measure of the provision of credit. However these amounts are within the control of the banks themselves and are therefore an appropriate target for the banks. The targets are kept under constant review in the context of levels of economic activity.
Data provided by the Central Bank indicates that the drawdown of new lending by non-financial SMEs from credit institutions in Ireland was €3.1 billion in 2011. Figures for the equivalent period in 2010 show drawdowns of €3 billion. Excluding SMEs in the property related sectors these figures show drawdowns of new lending of €2.2 billion in 2011, roughly equal to amounts drawn down in 2010.
I would point out that the drawdown of funding is at the discretion of the borrower. There are many factors affecting whether or not funding is drawn down, such as changes in market conditions or company restructuring. The recent Mazars Survey of SME Lending, conducted on behalf of my Department, found that the most frequently cited reason for not availing of approved credit was ‘not needed at present time'.
With regard to the decline in lending to households, Irish households have been reducing their levels of debt since early 2009. In the years preceding the financial crisis, Irish household debt as a percentage of disposable income increased to become one of the highest levels in Europe. As some commentators have noted, including the IMF in their most recent World Economic Outlook, high levels of debt can impede economic recovery. Households can be more susceptible to distress from increasing interest rates and declining incomes. In more recent years Irish households have recorded a greater percentage decrease in debt than any other European country. This is as a result of increased repayment of loans and more consumer reliance on current income rather than credit to fund purchases. This is normal behaviour by households in declining economic circumstances and the expectation is that Irish households will continue to reduce their debt levels over the next number of years.
I would also draw the Deputy's attention to the latest quarterly mortgage lending data, published by the IBF, which shows the number of new mortgages increased for three consecutive quarters in 2011. Whilst the number of new mortgages is significantly below peak levels, this is the first time since Q4 2005 that the number of new mortgages has increased in three consecutive quarters and suggests some tentative signs of stabilisation in the mortgage market.
