Tuesday, June 30, 2009

Open For Business?

Today's Central Bank statistics add more to fuel to the fire about bank lending to Irish businesses. The latest data are for March and April 2009. I have taken Table B2.2 new business lending volumes to non-financial corporations and I have combined the monthly 2009 data and the equivalent 2008 data to determine what the year-on-year trend is. Note that Easter was in March last year but in April this year - so combining the two months offsets any potential seasonal influences.

Nevertheless the picture is quite disturbing: overdraft facilities are up on last year - just (by 1.1%). But smaller loans (under €1 million) are down: by nearly 18%. And larger loans (over €1 million) are down by over 19%. In the case of the latter there appears to have been a collapse in longer term loans of over 5 years duration between March and April 2009. I have no idea why.

I used to wonder what is the point of Anglo-Irish Bank: now I'm beginning to worry about all the rest of them ...

3 comments:

  1. The past year has seen an unprecedented contraction in economic activity, with an accompanying fall in prices and rise in unemployment. It would have been astonishing if demand for finance had not shrunk against that background, as a consequence of inventory effects if nothing else. Why the supply side should be the first suspect for causing the volume of lending to stagnate boggles my mind, but that's just me, I suppose

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  2. Sure there's a demand side component Fergus. The Central Bank data therefore reflects the 'net' outcome of demand and supply for credit. There is, however, a great deal of survey evidence from ISME/SFA etc to suggest that demand exceeds supply at present.

    I don't doubt that unprecedented contractions in economic activity will - other things being equal - reduce business demands for credit. But the strange thing is that the UK has had its own unprecedented economic contraction and yet Bank of England statistics show a year-on-year increase in business lending.

    See Table 1A in the June report on Trends in Lending here:

    http://www.bankofengland.co.uk/publications/other/monetary/trendsinlending.htm

    Which says to me that we have our own unique supply side factors that are making a bad situation much, much worse.

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  3. ...And I acknowledge that there is a supply-side component :-)

    I simply don't understand the UK data, but it is a very different economy.

    As for the ISME/SFA surveys, they simply confirm the insatiable appetite - not to mention gargantuan sense of entitlement - of small businesses for more credit, whatever the economic background.

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