Australia: Private credit Lift in business extends into July – Westpac

Australia’s credit grew by 0.5% in July, matching the average for the June quarter and a step-up from the relatively soft 0.3% March quarter average as business emerges from a soft spot, notes Andrew Hanlan, Economist at Westpac.

Key Quotes

“Annual total credit growth is 5.3% currently, moderating from 6.0% a year earlier. Housing credit growth is 6.6%, unchanged from a year ago. Business credit grew by 4.2% over the past year, slowing from 6.3% a year earlier, reflecting some loss of appetite from both borrowers and lenders.”

“Housing credit growth is likely to slow in response to the recent tightening of lending standards and out of cycle interest rate rises by commercial banks. As well, the boost from RBA rate cuts in May and August 2016 has faded. That said, more generous state government first home buyer initiatives, in effect from July, will provide a partial offset.”

“There is tentative evidence that housing credit is beginning to slow. In July, housing credit expanded by 0.48%. This represents a step-down from a 0.55% average pace in the March quarter. It follows outcomes of 0.51% in April, a surprise 0.56% rise in May (most likely noise), and a 0.50% for June.”

“On a quarterly basis, the tentative slowdown in housing credit is evident. The recent quarterly growth profile is: 6.1% annualised in Q2 2016; lifting to 6.4% in Q3; 6.6% in Q4; and 6.8% in 2017 Q1; then moderating to 6.5% in Q2; and printing at 5.9% annualised for the month of July 2017.”

“The total value of housing finance having edged lower earlier this year appeared to have stabilised in June. While some month to month volatility is likely, we expect an emerging downtrend to be evident over coming months.”

“As to investor housing credit, this grew by 0.41%mth in June and July, the softest monthly results since May 2016 - partly due to switching to the owner-occupier market. Annual growth for investors is 7.4% currently, while the 3 month annualised pace is 5.4%. For the owner-occupier segment, 3 month annualised credit growth has lifted to 6.9%, up from 5.5% at the start of the year.”

“Turning to business, lending was volatile around a weaker trend over the past year or so. There was the dampening impact from heightened uncertainty around the July 2016 Federal election. This was followed by a burst of lending late in 2016 around infrastructure privatisation, contributing to a 1.1% jump in business credit in the month of December.”

“In the business segment, over this period, there was an underlying loss of appetite from some borrowers (including deleveraging by the mining sector) and from some lenders (partly to reduce exposure to selected industries and to larger companies).”

“More recently: the business mood has improved, mirroring global trends; commercial finance, while still volatile and not at a strong level, is off earlier lows; and business credit has advanced. Business credit increased by 0.5% in July, following gains of 0.4%, 0.3% and 0.8% for the three months April through to June.”

“Business investment in the real economy by the non-mining sectors is advancing, but growth is currently relatively subdued, pointing to only modest growth in business credit.”