CommSec: Lending near 5-year low; Credit cards shunned

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Lending finance; Credit & debit card statistics

  • Lending slides again. Total lending finance fell for the third time in four months, dropping by 3.8 per cent in April to near 5-year lows. Lending is down 3.4 per cent over the year. In trend terms lending is at 8-month lows.
  • The average credit card balance barely budged in April, up just $4.50 to $3,325.70. The average balance is up just 2.9 per cent on a year ago – below the rate of inflation.
  • Consumers prefer to use their own money to purchase goods. Purchases made on debit cards were up by 22.2 per cent on a year ago, while purchases made on credit cards rose by just 4.6 per cent.

What does it all mean?

  • The “new conservatism” appears here to stay. Not only did new lending slide again in the latest month to be back near 5-year lows but the average balance outstanding on credit cards is continuing to fall in real terms. While consumers and businesses haven’t declared debt to be “bad”, they are distinctly wary about taking on loans or credit obligations.
  • The “new conservatism” is no better illustrated than in the way that consumers prefer to pay for their goods.Purchases made on debit cards are growing at four times the pace as spending made with credit cards.
  • Australia’s economic momentum will continue to be restrained by the negligible pace of lending and credit use. In part the reluctance to take on debt gets down to a lack of confidence and in part it reflects concern about the cost of debt. At face value, the cash rate doesn’t seem super-high but it is certainly biting.
  • You only have to lift interest rates if you need to slow the pace of the economy or check inflationary pressures. It is clear from recent data that the economy is sluggish and inflation is well contained, ensuring the Reserve Bank stays on the sidelines for the time being.

What do the figures show?

Lending Finance:

  • Total new lending commitments (housing, personal, commercial and lease finance) fell by 3.8 per cent in April – the third fall in four months. Lending had lifted 6.8 per cent in March after dropping by 5.8 per cent in February. Lending totalled $50.7 billion in April, down 3.4 per cent over the year.
  • All housing finance (owner occupier & commercial) rose by 6.0 per cent in April – the first rise in four months –after easing by 1.2 per cent in February.
  • Commercial finance fell for the third time in four months, sliding by 8.8 per cent in April. Within commercial commitments, fixed lending fell by 11.8 per cent while revolving credit fell by 1.8 per cent. Commercial loans are down 5.3 per cent on a year ago.
  • Personal finance rose by 0.4 per cent in April, the second gain in five months, after a modest 0.6 per cent increase in March. Fixed lending commitments rose 3.3 per cent, while revolving credit commitments fell 2.8 percent. Personal loans are down 9.2 per cent on a year ago.
  • Lease finance rose by 2.3 per cent in April after rising by 11.2 per cent in March and falling by 11.6 per cent in February. Lease loans are up 21.2 per cent over the year.

Credit & debit card activity:

  • Figures released from the Reserve Bank show that the average credit card balance rose by just $4.50 to $3,325.70 in April. The average credit card balance is up 2.9 per cent on a year earlier. The number of credit card accounts rose by just 1.9 per cent over the year to April – the slowest pace in 13 months.
  • Of credit cards attracting interest charges, the average outstanding balance fell by $1.20 to $2,450.20. The average balance accruing interest is up 3.4 per cent on a year ago.
  • The number of credit card cash advances fell by 8.6 per cent in April, the fourth decline in five months. Credit card advances are now down 6.1 per cent on a year ago and have largely been falling in annual terms for fouryears.
  • The number of purchases made on credit cards in April was up by 4.6 per cent on a year ago. In contrast total debit card transactions were up by 22.2 per cent on a year ago – just short of the fastest growth on record. EFTPOS only transactions were up a record 25.4 per cent on a year ago.

What is the importance of the economic data?

  • Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal,commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
  • The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

  • Banks will have to work increasing hard to get consumers and businesses to take on new debt obligations. The tough business conditions will restrain margins and profitability.
  • The lending and credit card data readings are the latest in a long line of indicators pointing to no change in interest rate settings for the time being. Next test is a speech by the Reserve Bank Governor tomorrow.

 

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