We keep hearing about banks lending to enterprises and the recovery in the banking sector in general. And we keep watching credit supply in the economy shrinking and shrinking and shrinking. The reality, of course, is simple: our banking system continues to deleverage and alongside, our companies continue to deleverage. This means that legacy debts relating to property investments and development are being washed off the books. Which, of course, accounts for property-related credit. But…
Take a look at this chart, plotting credit advanced to Irish private sector enterprises.
The property deleveraging story is in solid orange. And not surprisingly, it is still heading down. With all the fabled foreign and domestic property buyers reportedly killing each other on their hunts for bricks and mortar assets in Ireland, there is less and less and less credit available for the sector. In part, some of this decline is now being replaced by foreign funding (lending and equity, including private equity). But the credit story is still the same: property related lending is down 6% y/y in Q4 2013 (latest for which we have data).
Deleveraging in financial sector is also there - the sector credit lines have shrunk 15% y/y in Q4 2013.
But what on earth is happening in the 'healthy' (allegedly) sectors of the economy - those ex-Property and ex-Financial Intermediation? Here, total credit is down 4% y/y in Q4 2013.
In fact, from Q2 2009 onward, Irish financial system registered not a single quarter of y/y increases in credit supply to non-financial and non-property enterprises in Ireland. That's right: credit did not go up even in a single quarter. Worse, between Q4 2011 and Q4 2013, average annual rate of decline in credit to real economy was -4.0% which is exactly the same as in Q4 2013. In other words, even in terms of growth rates, there is no improvement.