Negative Net Lending to Firms and Households

Last month, Philip noted the new Central Bank release on Money and Banking. Philip pointed out the new presentation of the data in a more useful format, with figures presented for what is essentially an IFSC and non-IFSC breakdown.  I had meant at the time to chip in to note some other useful improvements but didn’t get around to it.

So, with this month’s release now available (with figures through July), let me first point out that the Bank are now making historical time series available (not sure a direct link works, so click on Statistics on the — newly rebranded! — webpage and then on Data under Credit, Money and Banking Statistics along the left hand side.)

The Bank are also now releasing figures that make the underlying credit situation easier to understand. Detailed figures on lending to households and non-financial corporations, including a breakdown by duration, are now available. The charts on year-over-year lending to firms and households in the press release are based on levels series that are cleaned for factors such as NAMA or exchange rate adjustments that affect the figures for total loans on the reported aggregate bank balance sheets.

Most useful of all, to my mind, is that the Bank now publishes figures for net amounts of new lending (i.e. new lending minus loans paid off) for both firms and households. For example, go to spreadsheet A.5 and click on the tab labelled Transactions and you’ll see these figures broken down by sector and maturity.

These figures are quite volatile from month to month. However, I ran up a chart (see below) of the three month moving average of net new lending to firms and households and it makes it pretty clear that there was a step down in credit availability in late 2008 and that net new lending has been negative for most of the past two years.

This time last year we were inundated with government politicians telling us that NAMA was going to get credit flowing. Well, there’s very little evidence of this occurring yet.

27 replies on “Negative Net Lending to Firms and Households”

@ Paul

Well, I was aware of these figures when I wrote the B&F piece. They’re what I was referring to when I wrote “Recent figures from the Central Bank show a steady pattern of reductions in the loans available to Irish firms and households since late 2008.”

As for downgrades, I believe that at UCD, our policy is that grades can only go up on review! But, yes, it was perhaps a bit generous …

Am I right in discerning that both series seem to have settled in the negative zone since big deleveraging at the end of 2008 (though I expect JtO will spot the uptick in the final data-points)? And is this not consistent with the ‘kick the can down the road’ policy?

Very useful, I’ve been wondering about the levels of net new lending for some time.

This is the real recapitalisation. It’s like a giant vacuum sucking money out of the economy and pouring into the banks.

Of course, the figures will be thrown by struggling borrowers rolling over their debts. If they are discounted, then the ratio of lending to recovery is lower still.


Undoubtedly among the ‘new loans’ being made to SMEs currently are overdrafts rewrapped as term loans.

@ Karl

is there any surveys out there showing actual demand vs supply of credit? Negative net lending by itself could simply mean that people are more interested in paying off debt than taking on new debt (note: i’m not saying this is the case, simply that this is definitely one dynamic effecting householders for instance). For instance, in the UK net lending has been essentially flat for the last six months, even though their banking sector has been cleaned up far more thoroughly than ours.

The University of Dublin reminds students that appeals can raise or lower their grades.
Are the underlying data SA or raw?


I think you have posed a chicken/egg question. Is it banks shrinking their balance sheets to keep pace with their shrinking equity? Or is it a lack of Keynes’s ‘animal spirits’? I don’t think we’ll see ‘animal spirits’ in this neck of the woods for a while. Too many housholds are looking at shrinking disposable income; and non-financial firms see demand shrinking everywhere.

Bank bad debt write-offs also reduces o/s lending.

In the US while debt has declined, consumers on average, aren’t paying down their debts at all. Rather, the defaulters account for the whole decline, while the rest have actually been building up more debt straight through the worst financial crisis and recession in decades.

@ Paul Hunt

with most asset prices either falling or not heading north anytime soon, it also simply makes sense to a lot of people to wait it out until things are more clear cut. Certainly it would seem to most people that upward price pressures on any number of goods and services are some way away yet.


And the galling thing is that there is both scope and a requirement for significant reductions in state, semi-state and sheltered sector prices. Current high price levels are eating into shrinking household disposable incomes and shrinking business profits. If these were cut they might cause some immediate deflation, but there would be a justifiable expectation of normal levels of inflation after that.

Roll on the EC/ECB/IMF, I say, and we can sort the bondholders and price gougers in one go. But the bond market will have to get us there, as the Government won’t voluntarily.

If you take the spreadsheet that Karl Whelan used to generate the graph in his post and do some more analysis some things stand out.

I assumed that net transactions show the net increase or reduction in debt over the month (am I correct?), so I cumulatively added them to the first outstanding debt figure for January 2003 and then compared them to the table of outstanding debt for each month. They match closely until about April 2006. After that there is a widening gap up to the most recent month July 2010. There is a cumulative gap of 100m euros by July 2010. For households the gap starts in Q1 2006. For non-financial corporations the gap doesn’t start to open until around July 2008 but the debt outstanding starts to fall very fast (it’s staring to look like a nosedive by July 2010) while the cumulative transactions falls very gently. The 100m gap is composed of 60m for non-financial corporations and 40m for households. (Most of the household gap appears to be accounted for by mortgages. In fact if you do the same exercise in the spreadsheet that gives more household detail, the mortgage gap looks like 50m euros.) Would this be an indication of the bad debt write-offs mentioned in one of the posts above?

I am not a finance or economics expert so there is a good chance I don’t properly understand the tables and my analysis is meaningless.

@ MH: The US debt situation seems chronic. Are ‘consumers’ really still racking up more personal debt? This would be madness.

If our Irish debt levels are declining – for whatever reason – then our aggregate economic activity should also be declining? So where is this ‘recovery’ then?

B Peter

[ps: For KW + BL: Grade ‘inflation’ is corrected for by use of Neg Marking!] No appeals are entertained!


When they said they’d get credit flowing, they meant long term economic credit. This is a kind of immanent credit which does not readily reveal itself to our earthbound perception, bound as we are by the vicissitudes of time and material existence. Only through the infinite light of NAMA (the tetragrammaton par excellence) can we hope to see this credit in the form of actual factual money. And then only if we pray really hard and weep bitter tears of repentance.

I was out by a factor of 1000; the “transactions/debt” gap I calculated is 100bn euros not 100m.

@ John Kehoe

The CB press release today says there were over 789,000 private residential mortgage accounts held in Ireland in June to a value of almost €118 billion; The credit data for June puts house finance at €108 billion.

So a difference of €10 billion

June 2008 credit total was published as €416 billion; in the current tables it is €393 billion.

Bad debt write-offs and NAMA transfers also result in changes in net lending.

@ Brian Woods

Morgan Stanley’s Richard Berner says the key tail risk is still lodged in housing and home prices, as about one in four homeowners with a mortgage owes more than the house is worth. That is leading to a wave of ‘strategic defaults’, in which borrowers who can otherwise afford to pay decide to walk away. Whether through foreclosure or strategic default, more mortgage chargeoffs are coming. “We think that the sea change in consumer behavior wrought by recession will persist over the next several years, as dim prospects for gains in household wealth will maintain an elevated saving rate, limit the eventual recovery in household debt to below the pace of income, and cap real spending growth in a 2-2.5% range.”

@ Michael Hennigan

“Bad debt write-offs and NAMA transfers also result in changes in net lending.”

In fact, the new transactions series used in my chart is not affected by this stuff. The press release accompanying the June release explained this as follows:

“Data on transactions, or flows, are provided on a more widespread basis for the first time. These underlying transactions measure the actual flow of lending or borrowing by credit institutions over the period – all other valuation effects which contribute to balance sheet changes over the period (e.g. foreign exchange movements, increased provisions or write-downs, reclassifications by reporting institutions etc.) are excluded. Transactions data provide a truer representation of developments in credit and deposits over the period.”

Last page of

oh, the heady days of youth
“To be sure, domestic credit creation will be slow to revive in a recessed economy, but revive it will, the profit-maximisation motive a sufficient spur as lending margins rebuild. With economies rebounding internationally, and credit reviving domestically, Ireland can break free from its textbook debt-deflationary spiral of the past two years and embrace the recovery trail.”
YES! Get me on that trail….

and then of course we have Jodie-n-Brian

JC: “A lot of people are still confused about Nama. The bottom line, from the beginning, was that it would get credit flowing again. When will credit start to flow, that’s what people want to know?”

BC: “Credit flows again when we take the distressed assets off the books of the banks so that they concentrate on the loan book that is viable and is productive. That will bring more international confidence, the banks being able to do the job, and that’ll bring more capital into the system.

“So we also have in our various acts and legislation passed to ensure that viable business propositions are supported. That’s a case-by-case basis. But the important point is this: if we didn’t legislate for Nama, and we don’t implement what has to be done, the availability of credit to the system will continue to decrease because the banks wouldn’t have the capacity to lend. So you’re asking for the black-and-white answer to that question: until you put in the new structures, and you take the problem out of the system, you’re not in a position to resolve the problem.”

JC: “When will it be? Will it be March, April, February?”

BC: “Well the answer is that Nama will be operationalised in the new year. The transfer of assets begins then. During the course of the six months you’re going to see the main part of that process implemented and arising out of that then you have the prospect of increased credit available . . . so during the course of 2010 we expect to see an improvement in the situation.”

JC: “So it’ll be the latter half of 2010 that credit begins to flow?”

BC: “Well, during the course of 2010, and in the meantime we have a system in place that seeks to ensure that banks are supporting viable business propositions.”

times up….

@Michael Hennigan
@ Karl Whelan

Like I said I am probably wrong. What I want to understand is why I am wrong.

To put it simply, according to the spreadsheet for Table A.5 Loans to Irish Private Sector – Sector and Maturity, between April 2006 and July 2010 the outstanding debt goes from 266bn to 292bn, an increase of 26bn. Yet the sum of net loan transactions over that period is +118bn. By comparison between Jan 03 and Apr 06, outstanding debt increases from 134bn to 266bn, an increase of 132bn. The sum of net loan transactions over the same period is +135bn.

My logic is as follows. In the spreadsheet for Table A.5 Loans to Irish Private Sector – Sector and Maturity there are 4 tabs. The 2nd tab shows Outstanding Debt, the 3rd tab shows Credit Transactions, in both by month from Jan 2003 to Jul 2010. I am assuming that the net lending transaction figure for each month represents a net increase (+) or decrease (-) in total debt for that month. If that is so, my understanding would be that the cumulative sum of the monthly figures would represent the total amount of debt over time, increasing or reducing as people and firms take out and repay loans. (The earliest outstanding debt figure is for January 2003 so I took that as the starting point to which the accumulating amount is added.) There would be a difference between the cumulative amount calculated this way and actual debt held by banks because of bad loans. When I calculate the cumulative amount using the 3rd tab and compare it with the 2nd tab showing the debt outstanding at the end of each month sure enough there is a consistent small varying difference up to about 2% from Jan 2003 to early 2006 (for the total columns). As I understand it that is a reasonable amount for bad debt. After that time there is a widening gap between the cumulative and actual figures. By July 2010 it is 95bn euros or 25% of the cumulative amount. (That is about twice Ireland’s current GNP if I am correct, hardly small change.)

Leaving aside the possibility that there a mistake in my spreadsheet formulas (a small but finite possibility given my track record), I want to understand why I have calculated such a big gap. I want someone to point out to me where my logic above is wrong. And if I am wrong then I want to understand what relation the transactions figure bears to the outstanding debt amount. If it isn’t a simple net increase or decrease in debt then does Karl Whelan’s graph actually tell us what he thinks it does? If I am right in my use of the spreadsheet numbers then does the 95bn mean anything?

@John Kehoe

Have you considered securitisations – for example A5.1 Household debt July 2010 is €139.2bn but with A6 it’s €176.5bn the difference of €37.3bn being the off balance sheet debt total shown on A6.

It also might explain Michael H’s €10bn gap between the 117bn mortgage arrears/repossession data and monthy data set?

Resolving the banks will mean the far lesser amount of capital will be available for lending. However, due to years of frivolity and malinvestment in pieces of paper called planning permissions, prices have to fall before demand revives.

Fall a long way. Japan gives us an idea of how far prices will need to fall. The banking system in the west took over, helping China and India to grow. They will remember fondly. But they also recall the Opium Wars. Trade with China! Afghanistan is needed again, for the purpose of its poppy fields. Taliban suppression cannot be tolerated.

Why? China is big enough not to need to trade. If it has people hooked on drugs ….. then profit can be made. So an artificial demand is created. Not an invisible hand at all! All too visible! But, if drugs were to be legalized, then the super-profits disappear ……

If Ireland were to have significant domestic savings, then it would not need foreign credit at all. Development would be at our own pace and with our own people in mind. A slower tide maybe more successful?

@bill hobbs

You are right. The securitization in Table A.6 looks to account for all except about €13bn of the gap between household debt transactions and outstanding debt which is close to Michael H’s €10bn gap. Case closed I suppose.

However it doesn’t account for very much of the gap for non-financial firms which is still €50bn. Is €50bn close to the value of loans transferred to NAMA?

Table A.5 poses a problem. It presents two time series, one a stock series (outstanding debt) and one a flow series (net debt transactions) in statistics-speak. Because they are presented in the same table you would expect them to be related, the flow series should correlate with changes to the stock series. Otherwise why put them together. Past 2006 that doesn’t seem true.


It’s my understanding that the stock and flow figures are not supposed to be compatible in this case. The transactions figures have been cleaned of securitisations etc to give a more accurate picture of the true flow of new lending.

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