Australian private credit: Business robust, housing gradual slowing - Westpac

Australia’s total credit grew by 0.5% in August, with housing and business both up 0.5%, while personal declined by 0.2%, notes Andrew Hanlan, Economist at Westpac.

Key Quotes

“The August result for total credit matches that for July and the June quarter average, which represents a step-up from the relatively soft 0.3% March quarter average, with business emerging from a soft spot.”

“Annual total credit growth is 5.5% currently, moderating from 5.8% a year ago. Housing credit growth is 6.6%, little changed from 6.5% a year ago. Business credit grew by 4.5% over the past year, slowing from 5.8% a year earlier, reflecting a temporary loss of appetite from some borrowers and lenders.”

“Shifting the focus to the current momentum, there is an emerging gradual slowing in housing, while business is relatively robust in the context of the post GFC experience.”

“Housing credit growth is likely to slow in response to the recent tightening of lending standards and out of cycle interest rate rises by commercial banks. As well, the boost from RBA rate cuts in May and August 2016 has faded. That said, more generous state government first home buyer initiatives, in effect from July, will provide a partial offset.”

“There is tentative evidence that housing credit is beginning to slow. In August, housing credit expanded by 0.52%. This represents a small step-down from a 0.55% average pace in the March quarter. Outcomes from April have ranged between 0.51% and 0.53%, with the exception of what appears to be a rogue 0.57% print for May.”

“On a quarterly basis, the tentative slowdown in housing credit is evident. The recent quarterly growth profile is: 6.1% annualised in Q2 2016; lifting to 6.4% in Q3; 6.6% in Q4; and peaking at 6.8% in 2017 Q1; then inching lower to 6.7% in Q2; and moderating to 6.4% in August.”

“The total value of housing finance has stalled since January this year, in contrast to double digit growth in the year prior to that. While month to month volatility is likely, we expect an emerging downtrend to be evident over coming months.”

“The slowing in the housing sector is centred in the investor market, for which 3 month annualised credit growth has eased to 5.3%, down from a high of 8.8% in December. For the owner-occupier segment, annual growth is 6.3% and the 3 month annualised pace is 6.9%, boosted in part by some switching / reclassification from investors.”

“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).”

“More recently, business lending has been more robust. Commercial financial has rebounded from a soft start to the year and business credit grew by 2.7% over the past six months, up from 1.7% over the previous half year.”

“Notably, there has been some strengthening in business investment in the real economy by the non-mining sectors, with annual growth lifting to 5.6%, we estimate. While not strong relative to the pre-GFC experience, growth in non-mining business investment is at a five year high.”