Australian private credit: Housing slows, business consolidates after a solid half year - Westpac

Andrew Hanlan, Research Analyst at Westpac, points out that Australia’s total credit grew by 0.3% in September, following gains of 0.5% in August and July.

Key Quotes

“The softer monthly outcome was due to a consolidation in business credit, inching 0.1% higher, which comes after a robust five months, when gains averaged 0.5%. 
Housing credit continues to slow, gradually, with an increase of 0.48% following a 0.52% rise in August.”

“Over the year to September 2017, total credit grew by 5.4%, matching the outcome for September 2016. Annual growth in housing credit is 6.6% currently, little changed from 6.4% in September 2016. Business moderated a little over this period, with annual growth now at 4.3%, down from 4.8% a year ago.”

“The relative stability in annual credit growth between September 2016 and September 2017 masks some momentum shifts.”

“Housing credit accelerated somewhat during the second half of calendar 2016, into early 2017, with a subsequent moderation since March. This profile reflects the boost from RBA rate cuts in May and August 2016, then the constraining impact of a tightening of lending conditions associated with macro-prudential measures.”

“Over the past three months, housing credit grew at a 6.2% annualised pace, moderating from a peak of 6.8% in March. This takes the pulse back to around the levels prevailing ahead of the RBA rate cuts in 2016.”

“Going forward, housing credit growth is likely to slow further in response to the recent tightening of lending standards and out of cycle interest rate rises by commercial banks. That said, more generous state government first home buyer initiatives, in effect from July, will provide a partial offset.”

“Turning to business, during the second half of 2016 and into early 2017, there was an underlying loss of appetite from some borrowers (including deleveraging by the mining sector, as well as the impact of heightened uncertainty surrounding the July 2016 Federal election, which saw some delay their investment decisions) and from some lenders (partly to reduce exposure to selected industries and to larger companies).”

“Recently, business lending has been more robust. Commercial financial has rebounded from a soft start to the year and business credit grew by 5.1% annualised in the six months to September, up from a 3.5% pace in the six months to March.”

“Notably, there has been some strengthening in business investment in the real economy by the non-mining sectors, with nominal annual growth lifting to 5.6%, we estimate. That sees growth in the value of non-mining business investment now at a five year high, albeit a pace below that prevailing prior to the GFC.”