Source: Central Bank and Financial Services Authority of Ireland

The Irish Central Bank said today that lending by Irish credit institutions recorded an increase of €59 billion in 2006. Annual growth in private-sector credit (PSC)¹ accelerated during the first half of the year, with a record adjusted growth rate being set in June at 30.3 per cent. Since then, annual growth has slowed somewhat and in December fell by two percentage points to 25.9 per cent, from a revised 27.9 per cent in November.²

The Central Bank said that while it would be tempting to associate this easier trend in credit growth with the rise in interest rates since December 2005, a substantial part related to an increase in securitised residential mortgages of some €8 billion. Such mortgages are removed from credit institutions books and, consequently, are excluded from total PSC.³ If these securitisations had not occurred, PSC growth at end-2006 would have been very close to the end-2005 rate of 28.8 per cent.

Source: Central Bank and Financial Services Authority of Ireland

The adjusted annual growth rate of non-mortgage credit reaccelerated during 2006, and peaked in June at 32.6 per cent, the highest rate since March 2000. The adjusted annual growth rate was 31.7 per cent in December. This rapid expansion of non-mortgage credit was driven by exceptionally strong lending to the real estate and construction sectors. Credit-card indebtedness rose in December, with new spending of €1.2 billion, which was 15.8 per cent higher than in December 2005. This led to an annual growth rate of 18.8 per cent in outstanding indebtedness. Following a period of relative stability, growth in credit card indebtedness was generally stronger from April 2006 onwards (see chart).

Residential mortgage demand remained strong in 2006 despite higher mortgage interest rates but growth slowed in the second half of the year. This occurred against the background of a sharp reacceleration in house prices during the first half of the year, followed by declining month-on-month increases since June. The December increase of €2.1 billion brought the annual increase in residential mortgages to €24 billion (adjusted for securitisations and reclassifications), which was above the 2005 level. The total amount of outstanding  residential mortgages was €123.3 billion at end-December. The adjusted annual growth rate of residential mortgages reached its peak in March 2006 at 28.1 per cent, but has moderated since then, to 25.5 per cent by December.⁴

Following the increase in official ECB interest rates announced on 7 December 2006, market interest rates firmed across all terms. The largest movement was in the overnight rate, which rose by 35 basis points. The 12-month rate rose by 17 basis points. Funds provided by the Bank as part of the ECB’s monetary policy operations fell by €1.8 billion to €27 billion in December (Table C2). The euro depreciated against the US dollar by 0.2 per cent, and against sterling by 0.4 per cent. The euro reached a new lifetime high against the Japanese yen, with a gain of 2.4 per cent over the month. Exchange rate movements resulted in a 0.7 per cent rise in Ireland's monthly average trade-weighted competitiveness indicator (TWCI)5 to 104.2 in December, from 103.5 in November.

Source: Central Bank and Financial Services Authority of Ireland

• Term/revolving loans increased by €3.2 billion;

• Residential mortgages (unadjusted for securitisations) fell by €1.6 billion;

• Other mortgages were €452 million higher;

• Loans up to and including one year dropped by €140 million; and

• Overdrafts decreased by €5 million.

• Overnight deposits increased by €3.4 billion;

• Deposits with an agreed maturity of up to two years decreased by €108 million; and

• Special Savings Incentive Account (SSIA) balances with credit institutions fell by €202 million, bringing total balances with credit institutions down to €5.5 billion⁶.

1 The money and credit statistics are provided by all of the credit institutions authorised to carry on banking business in the State under Irish legislation as well as credit institutions authorised in other Member States of the EU operating in Ireland on a branch basis. Credit institutions authorised in other EU Member States operating in Ireland on a cross-border basis, i.e., with no physical presence in the State, are not included in the statistics.

6 SSIAs are classified as deposits with an agreed maturity of over two years, and consequently are not included in Ireland’s contribution to euro-area M3.