Five Irish banks reported a deterioration in their retail and wholesale funding in the final quarter of 2011 and expect this to remain broadly unchanged for the first quarter of this year, according to the latest quarterly survey of bank lending in the euro area.

The banks, which were not identified in the survey released by the Central Bank, said that credit standards on loans to businesses did not change in the final quarter of 2011 but there were further declines in demand for loans.

Demand for loans from businesses is expected to continue declining in the first quarter of this year and the recent pattern of unchanged credit standards will also continue, the survey said.

There was a tightening of credit standards for residential mortgages in the final quarter of last year and the banks anticipate further tightening in the first quarter. There was some easing on mortgage interest margins but this coincided with more restrictive loan-to-value ratios on new mortgages.

Mortgage demand fell due to concerns about the prospects for the housing market and lower consumer confidence. Demand for consumer loans and other credit declined further, despite unchanged credit standards in the final quarter of 2011.

Confirming the results of deleveraging and recapitalisation, the banks reduced their risk weighted assets - loans against which they must set aside capital - and increased in their capital positions in the second half of 2011. They said that they expected this to continue in the first half of this year.

The banks expect their access to short-term retail deposits to deteriorate further in the first quarter of this year.

Lenders were more optimistic about raising funding by selling on house loans to debt investors in securitisation deals. The banks reported no direct impact on their funding or credit credit standards from the recent tension in the European sovereign debt markets.