Personal lending falls off a cliff as pandemic hits, Central Bank finds

LENDING for the likes of mortgages and cars slumped as the pandemic lockdowns saw close on a million workers take up Governmentsupported wage schemes, according to a new analysis by the Central Bank of Ireland.

The study published by the Central Bank today gives a quicker insight to what is going on in the real economy than official data, which often lags the fast-moving events of the pandemic lockdowns, and it suggests that economy is experiencing an unprecedentedly large negative shock.

At the same time, business loan volume surged initially, but has since fallen back, according to an analysis of the data. Three economists used the bank’s database on lender enquiries to the Central Credit Register which is used in loan applications for over €2,000.

“By the end of the month, the total level of enquiries had decreased by 20pc compared to February. By mid-April, credit enquiries averaged around 2,000 per day – compared with around 5,800 per day in February,” Rory McElligott, Martina Sherman and Maria Woods wrote in the report.

Personal overdraft inquiries had halved by April 18 from February 7 while mortgage queries were at a third of their pre-pandemic levels by the same date, the economists found.

“If such trends continue, there may be implications for demand in the housing market in the coming months. Lending for house purchase continued to increase during March, however, indicating that sales that were at an advanced stage may be proceeding,” the report said.

There was an initial spike in personal overdraft inquiries in mid-to-late March which has now fallen back.

“While overdrafts are typically a small component of both outstanding household lending (3pc) and of credit enquiries, higher applications suggest either cash-flow concerns or precautionary behaviour during March,” it said.

The economists said that a precautionary pullback from the purchase of non-essential items was the likely explanation for a decline in personal loan, credit card and car finance applications.

In contrast, business initially stepped up their demand for credit with financing needs rising by a fifth in March, mainly due to overdraft requests. However, that activity has now fallen back to 70 requests per day from a peak of 185, the data showed.