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Household savings in banks outstrip debts

Irish banks now have €10.2bn more on deposit from households than is loaned out into the economy, equalling the lowest loan-to-deposit ratio on record, according to new data from the Central Bank.

The loan-to-deposit ratio for households stood at 0.90 in February. Despite a low official interest rate, cash on deposit has racked up while overall debt in the economy has been in decline since the 2008 peak.

While too much lending can leave banks vulnerable, the opposite is also a problem for both banks’ profitability and for the real economy.

Merrion Capital chief economist Alan McQuaid said the February banking data is evidence of a weak overall credit environment in Ireland and a bad sign for growth.

“But, the bottom line is that credit will need to flow at a much stronger level than currently if the economy is to continue to grow strongly over the long-run,” he said.

The lack of new housing has capped banks’ ability to increase mortgage lending, while many households have become more cautious or are unable to borrow because of past arrears.

Mortgage loans, which account for 83pc of total on-balance sheet loans, decreased by €148m in February, although net mortgage lending was €121m higher year on year.

Deposits from households increased in net terms by €275m in February. Annually, household deposit lodgements were €3.3bn higher than withdrawals.


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