Non-banks dominate consumer lending, except for mortgages

Credit unions now lead the market for personal loans, says Central Bank

Irish drivers owe a combined €4.8bn on PCPs, hire purchase agreements and other asset finance contracts, mostly provided by lenders outside the main banks.

The scale of lending for car deals is included in a new report, An Overview of the Consumer Credit Market in Ireland, published by the Central Bank.

A decade ago, in March 2014 the total value of outstanding car finance deals was around €1bn.

The new Central Bank data shows mortgages account for by far the biggest share of consumer lending – unsurprisingly so given the cost of buying a home. The traditional banks dominate the mortgage-lending space which accounts for 77pc of the total €144bn of outstanding debt owed by Irish households.

However, banks’ grip on consumer lending is significantly lower.

Mortgages and credit cards are the only consumer segments dominated by AIB, Bank of Ireland and PTSB.

Outside of mortgages there are three main categories of consumer credit, which currently breaks down as €10.8bn in personal loans, €4.8bn in personal asset finance and €2.2bn of credit card and overdraft balances.

The data shows that credit unions dominate the market for personal loans – with €6.27bn on loan to members versus €3.2bn owed to banks. That may help explain why the pass through of ECB interest rate hikes to Irish consumers has been relatively muted, according to Kevin Johnson, CEO of the Credit Union Development Association.

“Credit union lending rates are particularly competitive as they are not impacted by elevated ECB rates,” he said.

The total of outstanding asset finance agreements such as a personal contract plan or hire purchase deal, which typically are for car purchases, is now €4.827bn, and is again dominated by non-bank lenders. Of the total in asset finance owed by Irish households, just €1.35bn is owed to the main banks.

The lion’s share of the market is owed to alternative lenders that typically work through the car sellers, including the credit arms of car makers like Renault and Volkswagen, or specialist lenders like Close Brothers.

The Central Bank report says personal loans and asset finance typically have interest rates of between 1pc and 12pc, while most credit card and overdraft facilities have interest rates of between 13pc and 23pc. What is described as a “small share of credit” is at “high-cost credit providers”, which are permitted to lend at rates above 23pc.

The Central Bank report indicates that households are riding out the interest rate hikes of the past two years relatively comfortably.

The cost of servicing non-mortgage consumer credit has not changed significantly for households since the beginning of monetary policy tightening in July 2022. The scale of arrears remains low in a historical context and there is no sign of large numbers of consumers “maxing out” credit cards – metrics that can signal emerging problems.

“Credit union lending rates are particularly competitive as they are not impacted by elevated ECB rates”