Tuesday, February 1, 2011

1/02/2011: Growth rates in credit and deposits

Having looked at the levels of credit and deposits through December 2010 in the previous post (here) lets take a look at the rates of change.
Credit growth rates above clearly show the following trends:
  • Household loans rate of contraction has accelerated from 4.8% yoy in October and November to 5.2% in December. Thus December 2010 marked the worst month in the entire series history since 2004.
  • Rate of decline in mortgages lending was also accelerating to 1.9% in December from 1.7% in November and 1.6% in September and October.
  • Rate of decline in credit for non-financial corporations eased in December to 1.6% yoy from 2.4% in November.
Next, deposits rates of change:
The chart above shows:
  • A dramatic exist from Irish banks by non-financial corporate deposits. This flight is accelerating - having gone from -9.2% yoy fall in July, to -13.1% in August, -14.8% in September, -15.4% in October, -14.9% in November and a whooping -16.1% in December.
  • Household deposits are also accelerating in the rate of decline from -2.4% in October to -4.5% in November and -4.7% in December
To highlight these dynamics and to dispel the myth of 'savings are rising' often perpetrated by some banks analysts, let's come back to the data on deposits. In December 2008-January 2009 there was a discrete jump in household deposits to the tune of just over €12.4bn. This jump is never really noticed by the analysts, but it reflects addition of the credit unions to the database. These are not new deposits, but rather the deposits that were held in institutions previously not covered by the dataset.

Now, let' remove this 'hump' and see what the banking sector deposits really look like today:
The chart abvoe does exactly this. And it clearly shows that:
  • Over 2010, Irish households have suffered a loss of savings, not a gain, pushing our deposits to the comparable level of December 2007
  • Over the entire crisis total private sector deposits have fallen to the levels comparable to those in May-June 2006.
And yet, we keep hearing (admittedly whimpered) calls for taxing 'sky-high' deposits/savings to 'release spending into consumption markets'.


Johnny said...

The media reports of increased household savings had puzzled me for a long time. That people were able to tighten their belts so much that they could support themselves on decreased incomes and increase savings never made sense.

Thanks for clearing this up

Scootland Economics said...

now that is wild

Anonymous said...

Well, I dunno. On the final point, I think it's not unfair to say that a lot of savings are still existing and even increasing, just not in the Irish banks.

Not all, or even I suspect a majority, of the withdrawals are withdrawals to meet rising expenditure. They are withdrawals to transfer it somewhere else, because the only worthwhile guarantee regarding holding money in an Irish bank is that it is guaranteed to do your head in.

I guess this number is largely unquantifiable though.