Showing posts with label Irish household deposits. Show all posts
Showing posts with label Irish household deposits. Show all posts

Friday, February 17, 2012

17/2/2012: Struggling Households

Last week we saw the release of the special module from QNHS on Response of Households to the Economic Downturn – Pilot module Quarter 2 2011. This is undoubtedly a topic of much interest to economists, but also to the general public. The results are mixed - some surprises, and some 'I've told you' moments.

Summary of the findings as follows (via CSO):


  • Overall, 79% of households cut back their spending on at least one of the listed items as a result of the economic climate in the two years before the survey. Which is not surprising, given the duration and the depth of the recession. In every economy there are always those (not necessarily the rich) who have relatively stable incomes even during the downturns.
  • More than half (56% of all) households cut back their spending on groceries.
  • More than half (57%) cut back spending on going out.
  • Similarity in the two cut backs above suggest that much of these impacted the same households which were forced to cut on both - highly discretionary (going out) and necessary (food) items.
  • Almost two thirds (64%) of households cut back their spending on clothing and footwear.
  • Spending on health insurance was reduced by 15% of households and 11% of households cut back spending on pension contributions. This highlights the dangers for the Exchequer from the current course of Irish policy to continue increasing indirect tax charges and semi-state charges. Health and Pension Levies are undoubtedly likely to have the adverse impact on both expenditures, thus increasing the Exchequer exposure to health and pensions liabilities in the future. Note, the results of the survey do not cover changes in demand since June 2011.
  • One fifth of households delayed or missed paying their bills (21%) in order to meet their outgoings on basic goods and services. 
  • One in ten delayed or missed loan repayments and a further one in ten delayed or missed paying their credit card bill.
  • In the two years prior to the survey 45% of households spent some or all of their savings to pay for BASIC goods and services over the last 2 years. And this in the environment of the elevated 'savings' across the nation.
  • 62% of households reduced the amount being saved.
  • The most financially impacted are families with 2 adults and children, which highlights the plight of the middle classes in Ireland.
  • One in ten households borrowed money from family or friends to pay for basic goods and services in the two years prior to the survey. Unfortunately, we have no idea how many received transfers from the family members in kind or in cash, not in form of debt.



There were some clear differences in the behaviour of households depending on the age of the household reference person, whether or not they were working and whether or not there were children in the house.

  • Cutbacks were far more likely in a household where the reference person was aged less than 55 years. Among households where the reference person was aged less than 35 or between 35 and 54 years, three quarters had cut back on clothing and footwear, compared with half of households where the reference person was aged 55 or older.
  • While 64% of households where the reference person was younger than 35 had cut back spending on groceries, this compares with 42% of those where the reference person was 55 or more.
  • Some 81% of households where the reference person was unemployed reported that they had cut back their spending on groceries in the previous two years, compared with 57% of households where the reference person was working.
  • Households with children were more likely than those without children to cut back their spending on groceries, clothing and footwear, going out, and lessons or classes
The above age- and household- related results are not surprising. Older households tend to have lower unemployment rates, higher security or stability of income, greater savings cushions to offset cutbacks. Families with children face far smaller share of their income in the form discretionary spending, which means they generally will be forced to make more painful cuts. Families with children also have smaller savings cushions.

Overall, the picture of the household financial and consumption patterns revealed in the report shows that Irish households are facing severe recession and that the economy is unlikely to benefit from significant increases in 'confidence'-related spending and investment for a long time, including in the first few quarters of any upturn in national income, as households will most likely only slowly return to higher levels of consumption, preferring to rebuild lost savings and to repay family loans.

Crucially, the above changes are taking place while majority of Irish households are still struggling under the massive debt overhang. Going forward, this implies that (1) any hikes in interest rates will drive households deeper into cutting spending and using savings for necessities, (2) any increases in future income are likely to be consumed by debt repayments, without benefiting national consumption.


Monday, July 4, 2011

04/07/2011: New Deposits in Irish Banking

Subprime Lending and the Housing Bubble: Over two previous posts I examined the data for new business loans rates for households (here) and non-financial corporations (here and spreads here). This post covers the deposits – both household and corporate.

Here is what the data on new deposits telling us:

  • Rates for household deposits with agreed maturity have fallen significantly between March 2011 (1.93%) and April 2011 (1.81%). The rates are now below those for the historical average of 2.366% and crisis period average (January 2008-present) of 2.394%. 12mo MA is 1.707%. The volatility of the rates has risen during the crisis from standard deviation for historical period being 0.950 to crisis period standard deviation of 1.155.
  • At the same time, new deposits volumes have contracted sharply for households from €12,333 million in March 2011 to €7,873 million in April 2011. Historical monthly average is €12,636 million and crisis period average is €12,938 million with 12mo MA at €10,079 million. April level of new deposits is the lowest since January 2003 – the start of the series.
  • Rates for non-financial corporations’ deposits with agreed maturity have risen from 1.41% in February and March to 1.52% in April, standing still below the historical average of 2.336% and crisis period average of 2.125%, but well ahead of the 12mo MA of 1.293%. The volatility of these rates has risen sharply during the crisis to a standard deviation of 1.319 from historical standard deviation of 1.036.
  • Volumes of corporate deposits with agreed maturity have declined from €6,720 million in March 2011 to €5,170 million in April 2011. These levels compare extremely poorly against historical average of €13,739 million, the crisis period average of €11,593 million and 12mo MA of €7,277 million.

Lastly, consider the spreads between deposit rates available to the households and those available to corporate clients. Keep in mind that from funding perspective, households deposits are probably less volatile than corporate deposits. Note that standard deviations for the two types of deposits by volume were: historical 3,000.8 million for households against 4,198.09 million for corporates and this relationship remains relatively stable for the period of the crisis.

So the spread on deposit rates for households over and above corporate deposit rates has narrowed to 0.29 percentage points in April from 0.52 pp in March 2011. Historical average spread was 0.03 pp and crisis period average is 0.269 pp while 12mo MA spread is 0.413 pp.