Quarterly Bulletin Q3 2013

33
Financing Developments
in the Irish Economy
Overview
Amidst a somewhat more volatile external environment in recent months,
financing conditions for the Irish public and private sectors have remained
relatively stable. Progress in implementing the measures required as part of
the EU/IMF Programme of Financial Support has continued, and the yields on
benchmark Irish sovereign debt are at levels last seen in 2005. Despite this,
yields on Irish government bonds ticked upwards towards the end of Q2 2013.
This is in line with wider market developments following the launch of the Cypriot
official assistance programme and announcements by the Federal Reserve on
the potential tapering of their quantitative easing measures towards the end of
2013. The rehabilitation of the Irish-owned credit institutions has also continued
as part of the EU/IMF Programme, with signs that more sustainable depositbased
funding at affordable rates of interest is emerging. The banking system in
Ireland continues to contract, however, as it deals with the high cost of impaired
loan-books following the contraction in the property market and domestic
economy generally.
The non-financial private sector in Ireland also
continues to adjust its balance sheet. Nonfinancial
corporations (NFCs) saw a reduction
in financial assets and debt positions in Q4
2012 arising from certain companies moving
their headquarters out of Ireland, but this
was more than offset by strong inflows from
foreign-owned multinational companies into
their Irish operations. However, the underlying
trend of NFCs deleveraging in the light of a
challenging environment for expansion and
investment, and management of previously
incurred debt, remains prominent, particularly
so for small- and medium-sized enterprises
(SMEs). Resident credit institutions’ loans
outstanding to NFCs continue to contract, with
a slight increase in the pace of contraction in
the first quarter of 2013. Similar developments
are evident for SMEs, and were seen across a
number of business sectors.
For households, aggregate debt levels have
fallen again in recent quarters, with the decline
evident during Q4 2012 being the largest
quarterly decline recorded since mid-2010.
This was driven by net repayment of loans by
households, predominantly to resident credit
institutions. The latest banking data suggests
that this trend has continued into Q1 2013,
with the pace of decline in credit institutions’
loans outstanding to households increasing
marginally to approximately 4 per cent yearon-year.
The reduction in overall liabilities was
the dominant factor in a rise of household net
worth during the last quarter of 2012. This
represents the second consecutive quarterly
rise in net worth following over four years of
steady decline, primarily as a result of the drop
in the value of housing assets. Underlying
these aggregate developments, a significant
proportion of households continue to face
difficulties in servicing their mortgage debt. At
end-March 2013, 12.3 per cent of all private
residential mortgage accounts for principal
dwelling houses (PDH) were in arrears of over
90 days. The trend emerging among longerterm
arrears continues to be of particular
concern, as the number of PDH accounts in
arrears of over 360 days rose to over 54,000
or 7 per cent of the total stock. Resolving