Lending at a seven-year high; Tourists flock to Greece

Lending finance; Credit & Debit Cards; Tourism Arrivals

• Lending: Total new loans (personal, business, housing & lease) rose 3.6 cent in April to a seven-year high of $75.7 billion. New loans are up 9.5 per cent over the year.
• Credit cards: The average credit card balance fell by $22.20 (0.7 per cent) to $3,192.10 in April. Compared with a year ago, the average credit card balance was down by 1.2 per cent – well below the rate of inflation.
• Scope to spend: The average credit card limit fell by $16 to $9,031 in April to be up 0.4 per cent over the year. Usage of credit card limits lifted modestly from the 13-year low of 34.9 per cent in January to 35.3 per cent in April.
• Tourism flows: Tourist arrivals rose by 3.8 per cent in January while departures rose by 0.2 per cent. Over the past year there were a record 873,500 tourists from China, double the level just over four years ago.
• Aussies lift Greek economy: A record 74,100 Aussie tourists visited Greece over the past year, up 21.3 per cent over the year.

What does it all mean?

• It’s been a rather upbeat fortnight in terms of the economic data. Strong economic growth numbers last week was followed by healthy business confidence and solid employment data. To cap it all off the latest data has shown that lending has lifted to a seven-year high. The key driver remains housing and in that context it is investor housing in particular that has driven the strength. Encouragingly the housing finance data on Tuesday showed that loans for construction of new dwellings surged by over 4 per cent in April. Housing activity will continue to be the backbone of the economy over the coming year.
• It is an even better result for lending given the lift in business and consumer borrowings. Business conditions are healthy, and it seems to be translating through to a lift in business borrowings. However businesses are still rather tentative and the key driver of future lending will be an ongoing improvement in labour market conditions, rise in business hiring intentions and lift in consumer confidence.
• The latest tourism figures make for interesting reading. The fastest growing countries for Australian tourists to visit are Brazil, Japan and Greece. Interestingly all three countries could be viewed as being a lot cheaper over the past couple of years given currency depreciation. What the data does confirm is that Australians are picking and choosing destinations depending on value.
• Consumers continue to be savvy about card use. The average credit balance has barely budged over the past year, despite an inflation rate near 2 per cent. So credit card debt is falling in real terms. Cardholders are frequently paying off credit card debt by the due date and using cards to maximise loyalty points. In fact around 60 per cent of CBA credit card holders pay of the card in full in the 55 day interest free period.
• The Reserve Bank will continue to maintain an implicit easing bias – particularly given that inflation is likely to remain subdued over the coming year – at the lower end of the Central Bank’s 2-3 per cent target band. Importantly, activity levels are lifting, driven by stronger home construction. And as a result we expect the Reserve Bank to keep rates on hold over the next few months.

What do the figures show?

Lending finance

• Total new lending commitments (housing, personal, commercial and lease finance) rose by 3.6 per cent in April to $75.7 billion. It followed the 1.4 lift in March. New loans are up 9.5 per cent over the year.
• Housing finance: The seasonally adjusted measure of construction and new purchases rose by 3.0 per cent in April while alterations & additions rose by 0.4 per cent. Home loans are up 15.4 per cent on a year.
• Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments rose by 4.0 per cent in April. Revolving credit commitments rose by 4.1 per cent while fixed lending commitments rose by 3.9 per cent. Business loans are up 6.4 per cent over the year.
• Personal finance: The seasonally adjusted series for the value of total personal finance commitments rose by 3.5 per cent in April after falling by 0.2 per cent in March. Revolving credit commitments rose by 0.1 per cent and fixed lending commitments rose by 5.8 per cent. Personal loans are up 13.2 per cent over the year.
• Within personal fixed finance commitments only two of the eight lending categories were higher in January compared with a year ago. Finance for used cars was down 6.2 per cent on a year earlier while loans for new cars were down by 6.1 per cent. Debt consolidation rose by 14.2 per cent while refinancing fell by 0.8 per cent.
• Lease finance: Lending fell by 1.5 per cent in April after falling by 1.3 per cent in March. Lease finance rose by 13.2 per cent over the year.

Overseas arrivals & departures

• Tourist arrivals rose by 3.8 per cent in seasonally adjusted terms in February – the strongest gain in 14 months – after falling by 1.8 per cent in January. Arrivals are up 6.9 per cent over the year. Tourist departures rose by 0.2 per cent in February after a similar rise in January. Departures are up 4.5 per cent on the year.
• Over the past year a record 873,500 tourists came to Australia from China, up 16.7 per cent over the year.
• Over the past year, net permanent and long-term arrivals to Australia totalled 304,690 – the lowest level in 3½ years (July 2011).
• The fastest growing destination for Australian tourists is Brazil (up 54 per cent), followed by Japan (up 23.3 per cent) and Greece (up 21.3 per cent).

Credit card lending

• Figures released from the Reserve Bank show that the average credit card balance fell by $22.20 (-0.7 per cent) to $3,192.10 in April. Compared with a year ago, the average credit card balance was down 1.2 per cent. In smoothed terms (12 month average) the average balance was down by 0.1 per cent.
• Of credit cards attracting interest charges, the average outstanding balance rose by $16.90 in April. The average balance accruing interest is down by 4.6 per cent on a year ago. In smoothed terms (12 month average) the average balance was down by 3.9 per cent.
• The average credit card limit fell by $16.00 to $9,031 in April. The average credit card limit rose by 0.2 per cent in the year to April. Usage of credit card limits had fallen to a 13-year low of 34.9 per cent in January and was holding at 35.3 per cent in April.
• The average repayment per credit card fell from $1,704 in March to $1,538 in April.
• On average, there were 11.2 transactions made per each credit card account in April, up from 10.7 a year ago. The average value of purchases was $129.10 in April.

Debit card lending

• The number of debit card accounts rose by 5.2 per cent in the year to April to 40.7 million.
• The number of purchases and cash-out transactions made with debit cards in April were up by 11.5 per cent on a year ago. The annual growth rate has averaged 12.4 per cent over the past two years.
• On average there were 8.1 transactions made per debit card in April, down from 8.5 a year ago. The average value of a transaction was $52.88.

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 Australian Bureau of Statistics releases data on overseas arrivals and departures is produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.
• 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?

• The Reserve Bank would be comfortable about the mix of borrowings: Aussie consumers and businesses are borrowing – but in a measured way. Still, the Reserve Bank would be watching the recent drop in consumer confidence a lot more closely.
• The weaker Aussie dollar is providing solid stimulus to the economy at present and the Reserve Bank will continue to assess the impact on the economy over the next few months. CommSec expects no change to interest rates in coming months.