Lending eases from 7-year highs

Lending finance; Credit & Debit cards; China trade

• Total new loans (personal, business, housing & lease) fell by 2.6 per cent in May after rising by 3.6 per cent lift in April. New loans are up 9.7 per cent over the year.
• Credit cards: The average credit card balance rose by $2.90 (0.1 per cent) to $3,195 in May. 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 rose by $7.10 to $9,038.10 in May to be up 0.3 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 35.4 per cent in May.
• China trade data: The trade surplus narrowed from US$59.5 billion in May to US$46.5 billion in June.

What does it all mean?

• The latest lending statistics show a mild consolidation in May although the result is hardly concerning – especially given that lending hit a seven-year high in the prior month. The real driver of lending over the past year has been the housing sector and in that context it is investor housing in particular that has driven the strength. However the housing finance data earlier in the week showed that loans for construction of new dwellings fell by the biggest margin in five years. No doubt the tighter bank lending standards being enforced by regulators is starting to play a part. And while housing activity will continue to be the backbone of the economy over the coming year, it may be showing signs of starting to cool – especially when it comes to irrational exuberance.
• Despite the pullback in borrowing, the outlook for the business sector looks encouraging. Business conditions are healthy, and it seems to be translating through to a lift in business borrowings. Commercial loans are up over 11 per cent on a year ago. 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.
• 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 off 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 rest of 2015.

What do the figures show?

Lending finance

• Total new lending commitments (housing, personal, commercial and lease finance) fell by 2.6 per cent in May to $73.5 billion. It followed the 3.6 per cent lift in April. New loans are up 9.7 per cent over the year.
• Housing finance: The seasonally adjusted measure of construction and new purchases fell by 5.3 per cent in May while alterations & additions fell by 3.7 per cent. Home loans are up 8.0 per cent on a year.
• Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments fell by 1.7 per cent in May. Revolving credit commitments rose by 14.0 per cent while fixed lending commitments fell by 6.6 per cent. Business loans are up 11.4 per cent over the year.
•  Personal finance: The seasonally adjusted series for the value of total personal finance commitments fell by 1.3 per cent in May after rising by 4.1 per cent in April. Revolving credit commitments rose by 1.4 per cent and fixed lending commitments fell by 3.1 per cent. Personal loans are up 5.6 per cent over the year.
• Within personal fixed finance commitments only three of the eight lending categories were higher in May compared with a year ago. Finance for used cars was down 12.4 per cent on a year earlier while loans for new cars were down by 2.1 per cent. Debt consolidation rose by 35.2 per cent while refinancing rose by 11.8 per cent.
• Lease finance: Lending rose by 0.7 per cent in May after falling by 1.5 per cent in April. Lease finance fell by 3.8 per cent over the year.

Credit card lending:

• Figures released from the Reserve Bank show that the average credit card balance rose by $2.90 (0.1 per cent) to $3,195 in May. 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 0.2 per cent.
• Of credit cards attracting interest charges, the average outstanding balance fell by $56.90 in May. The average balance accruing interest is down by 5.7 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 rose by $7.10 to $9,038.10 in May. The average credit card limit rose by 0.3 per cent in the year to May. Usage of credit card limits had fallen to a 13-year low of 34.9 per cent in January and was holding at 35.4 per cent in May.
• The average repayment per credit card rose from $1,538.10 in April to $1,544.7 in May.
• On average, there were 11.2 transactions made per each credit card account in May, up from 11.0 a year ago. The average value of purchases was $132.60 in May.

Chinese trade data

• The trade surplus narrowed from US$59.5 billion in May to US$46.5 billion in June. Exports were up 2.8 per cent over the year (forecast: +1.0 per cent) while imports were down by 6.1 per cent (forecast: -15.5 per cent).

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.
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy

What are the implications for interest rates and investors?

• The Chinese economy is rebalancing just like Australia’s economy. But with inflation low, policymakers have ample leg-room to add more stimulus to the economy.
• CommSec expects interest rate to remain on hold over the rest of 2015.