Australia: Total private credit grew by 0.4% in October 2017 - Westpac

Andrew Hanlan, Research Analyst at Westpac, explains that for October, Australian credit to the private sector met their expectations as total credit grew by 0.4%, in line with the average of the past three months.

Key Quotes

“Housing continued to slow gradually in the wake of tighter lending conditions and at this late stage of the cycle. October saw a gain of 0.47% after a 0.48% increase last month and moderating from a 0.55% average during the March quarter.”

“Business credit advanced modestly, +0.3%, at a time of low interest rates and as business expands investment in the real economy.”

“Annual credit growth is 5.3% currently, unchanged from a year earlier and down from a high of 6.7% during the 2015/16 year. Housing credit grew by 6.5% over the past year, little changed from 6.4% a year earlier. Business credit increased by 4.0% in the year to October, moderating from 4.4% a year earlier.”

“The relative stability in annual credit growth between October 2016 and October 2017 masks some momentum shifts.”

“Housing credit accelerated somewhat during the second half of calendar 2016, into early 2017, with a subsequent moderation since March. This profile reflects the boost from RBA rate cuts in May and August 2016, then the constraining impact of a tightening of lending conditions associated with macro-prudential measures.”

“Over the past three months, housing credit grew at a 6.1% annualised pace, moderating from a peak of 6.8% in March. This takes the pulse back to around the levels prevailing ahead of the RBA rate cuts in 2016.”

“Going forward, housing credit growth is likely to slow further in response to the recent tightening of lending standards and out of cycle interest rate rises by commercial banks. That said, more generous state government first home buyer initiatives, in effect from July, will provide a partial offset.”

“Note that the total value of housing finance has contracted by 1.6% in 2017, for the year to date, a turnaround from a 10% increase during 2016. While month to month volatility is likely, we expect a downtrend to be evident over coming months.”

“The cooling in the housing sector is centred in the investor market, for which 3 month annualised credit growth has slowed to 5.4%, down from a high of 8.9% in December. For the owner-occupier segment, the 3 month annualised pace is 6.3% currently, moderating from 7.2% in July.”

“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).”

“For much of 2017, business lending has been more robust at a time of improve business confidence. Commercial financial has rebounded from a soft start to the year and business credit grew by 4.7% annualised in the six months to October, up from a 3.4% pace in the six months to April. Notably, there has been some strengthening in business investment in the real economy by the non-mining sectors, particularly in construction, both infrastructure and non-residential building.”