The Central Bank’s money and banking statistics are a pretty dry bunch of numbers at the best of times, but they provide a simple snapshot of the banking system and the risk appetite of Irish households.
The latest figures, published this week, reveal banks here held almost €11 billion more deposits than loans in March. Total household deposits were €101 billion while household credit was €90 billion.
This is a complete reversal of the Celtic Tiger era, when there were €70 billion more in loans than deposits at the high point back in 2008.
Despite ultra-low interest rates, Merrion analyst Alan McQuaid says consumers are still playing it safe, paying down outstanding debt and not taking on new loans.
So while headlines about runaway house prices and supersonic growth might evoke comparisons with the boom, they overlook one of the key ingredients of the bust last time, namely credit.
Central Bank governor Philip Lane said as much at a recent IMF conference in Washington, highlighting that the Irish economy was better placed to withstand a recession this time around because of the higher levels of equity being used to finance investment rather than traditional bank debt.
While lending for house purchase increased in annual terms for a fifth month in a row in March, the aggregate numbers remain low and reflect what the Central Bank sees as subdued credit growth.
These more stable credit numbers will no doubt be cold comfort for people trying to buy a house, but from the Central Bank’s perspective they suggest Irish households are better placed to withstand a sudden shock to the economy, or the likely hardship implied by a sequence of interest rate hikes, and that the current spate of rapid economic growth is not being fed by reckless lending.
That’s not to say we won’t get a reversal in house prices one of these days. It just won’t have the same impact.
