Australia: Private credit grew by 0.6% in June - Westpac

Andrew Hanlan, Economist at Westpac, notes that the Australia’s private credit grew by 0.6% in June, up from gains of 0.4% in each of the three previous months and as is often the case, a shift in the business segment - on this occasion a spike - is the source of monthly volatility in total credit.

Key Quotes

“Annual total credit growth lifted to 5.4%, up from 5.0% in May. In part this is due to base effects, with the weak June 2016 result dropping out of the calculations. Total credit grew by only 0.2% in June 2016 as uncertainty ahead of the July 2 Federal election saw business credit contract, down 0.4%.”

“Annual credit growth of 5.4% represents a moderation from 6.2% in mid-2016. Over this period, business growth has slowed to 4.4% from 6.5%, reflecting both a loss of appetite from borrowers and lenders. Housing credit growth of 6.6% currently rounds down from 6.7% a year earlier.”

“Housing credit growth is set to slow in response to the recent tightening of lending standards and out of cycle interest rate increases by the commercial banks. As well, the impacts of the RBA's rate cuts in May and August 2016 have passed. More generous state government first home buyer initiatives, taking effect from 1 July, will provide a partial offset.”

“There is tentative evidence that housing credit is beginning to slow. In June, housing credit expanded by 0.50%. This represents a step-down from a 0.55% average pace in the March quarter. It follows outcomes of 0.51% in April and a surprise 0.56% rise in May, which was most likely noise.”

“On a quarterly base, the tentative slowdown in housing credit is evident. The recent quarterly growth profile is: 6.0% annualised in Q2 2016; lifting to 6.5% in Q3; 6.7% in Q4; and 6.8% in 2017 Q1; then moderating to 6.5% in Q2; and printing at 6.2% annualised for the month of June 2017.”

“Note that the total value of housing finance has trended a little lower of late, declining by 1.5% over the four months to May. While some month to month volatility is likely, we expect this emerging downtrend to continue.”

“As to investor housing credit, this grew by 0.41%mth in June, the softest monthly result since May 2016 - partly due to switching to the owner-occupier market. Annual growth is 7.4% currently, while the 3 month annualised pace is 6.0%.”

“Turning to business, lending has been volatile around a weaker trend over the past year or so. There was the dampening impact from heightened uncertainty around the Federal election. This was followed by a burst of lending late in 2016 around infrastructure privatisation, contributing to a 1.1% jump in business credit in the month of December.”

“In the business segment of late, there has been an underlying loss of appetite from some borrowers (including deleveraging by the mining sector) and from some lenders (partly to reduce exposures to selected industries and larger companies).”

“Business credit growth of 0.9% in the month of June exceeds that suggested by recent trends in commercial finance, possibly reflecting the impact of a sizeable transaction. Commercial finance while up from the lows of early 2017 is not particularly strong.”

“Business investment in the real economy by the non-mining sectors is advancing, but growth is currently relatively subdued, pointing to only modest growth in business credit.”