Private sector credit
- Lending: Private sector credit (effectively, outstanding loans) rose by 0.5 per cent in August after a 0.4 per cent rise in July. Credit was up 4.5 per cent over the year, up from the 4½-year low of 4.4 per cent in July.
- Investor housing: Investor housing finance rose 0.1 per cent in August with annual growth remaining at a record low of 1.5 per cent.
- Non-banks: Loans and advances by non-bank financial intermediaries rose by 10.3 per cent over the year to August, up from 6.2 per cent in July and the strongest annual growth in a decade.
Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending.
What does it all mean?
- In response to more considered lending by banks, non-bank financial institutions are more active, posting annual lending growth above 10 per cent. Clearly competition in the financial sector remains healthy.
- While investors are less active in the housing market, there is still healthy borrowing by owner-occupiers, supported by a strong job market and more affordable home prices.
- The Reserve Bank would have few concerns with lending and deposit trends. There is ample liquidity but consumers and businesses remain reluctant to take on debt. Credit is growing at a 4.5 per cent annual rate, well below nominal growth of the economy at 5.5 per cent.
What do the figures show?
Private sector credit
- Private sector credit (effectively outstanding loans) rose by 0.5 per cent in August after a 0.4 per cent rise in July. Credit was up 4.5 per cent over the year, up from the 4½-year low of 4.4 per cent in July.
- Housing credit grew by 0.4 per cent in August after a similar rise in July. But the annual growth eased from 5.5 per cent to 5.4 per cent – the lowest growth rate for 4½ years.
- Owner occupier housing credit rose by 0.5 per cent in August to stand 7.5 per cent higher over the year.
- Investor housing finance rose by 0.1 per cent in August with annual growth remaining at the slowest rate on record of 1.5 per cent.
- Personal credit fell by 0.2 per cent in August to be down 1.4 per cent over the year.
- Business credit rose by 0.8 per cent in August – the strongest gain in 14 months. Annual growth lifted from 3.3 per cent to 3.8 per cent.
- Both the M3 money aggregate and Broad Money were up by 0.7 per cent in August to be up 2.4 per cent for the year. Previously in July, Broad Money and M3 were growing at the slowest annual growth rates in 26 years.
- Term deposits with banks rose by $8.1 billion to $602.7 billion in August. Annual growth rose from 4.7 per cent to 6.0 per cent, a 14-month high.
- Loans and advances by banks grew by 4.7 per cent in the year to August, up from 4.6 per cent in the year to July which was the equal slowest growth rate in 26 years. And loans and advances by non-bank financial intermediaries rose by 10.3 per cent over the year, up from 6.2 per cent in July and the strongest annual growth in a decade.
- Deposits at banks rose by 0.6 per cent in August to stand 2.5 per cent higher than a year ago. Previously in July the 1.9 per cent annual growth of deposits was the equal slowest rate in 26 years.
What is the importance of the economic data?
- Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
What are the implications for interest rates and investors?
- Banks are facing greater competition from non-banks. At the same time bank deposits are only lifting at a 2.5 per cent annual rate, putting greater reliance on external funding. It is clearly a competitive and challenging environment for financial institutions.
- Of some encouragement for banks, term deposits are growing at a 6 per cent annual rate despite interest rates hovering near 2 per cent – well below dividend yields on blue-chip Aussie companies.
- Over coming months we will be watching the job market and wages. At this stage though we aren’t expecting a rate hike over the coming year.