"Shoring up" of business balance sheets continues in July

Summary: Private sector credit grows by 0.7% in July, above expected figure; annual growth rate rises from 3.1% to 4.0%; reflects “shoring up” of businesses balance sheets; business loans again mostly account for net growth; owner-occupier loans lead; housing credit growth continues, business loans up, personal loans down.

The pace of lending to the non-bank private sector by financial institutions in Australia has been trending down since late-2015. Private sector credit growth appeared to have stabilised in the September quarter of 2018 only to deteriorate through to the end of 2019. The early months of 2020 provided some positive signs but they disappeared in April 2020. Recent months’ figures indicate the downtrend is over.

According to the latest RBA figures, private sector credit growth increased by 0.7% in July. The result was above the generally expected figure of 0.5% but less than June’s 0.9%. On an annual basis, the growth rate increased from 3.1% in June to 4.0%.

“We suspect this mostly reflects the shoring up of businesses balance sheets as it became clear Sydney’s lockdown was ongoing,” said ANZ economist Hayden Dimes.

Commonwealth Government bond yields moved higher on the day. By the close of business, the 2-year ACGB yield had gained 4bps to 0.30% while 10-year and 20-year yields each finished 6bps higher at 1.21% and 1.84% respectively.

Owner-occupier loans and business loans accounted for much of the net growth over the month. Investor loans again grew quite modestly while total personal debt contracted again.

“Owner-occupiers have led this cycle, with the 3 month annualised pace of credit growth for this segment at 10.3% currently. Of late, investors are returning to the market in greater numbers, such that credit momentum to this segment has lifted to 3.7% annualised,” said Westpac senior economist Andrew Hanlan.

The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.9% over the month, in line with June’s increase. The sector’s 12-month growth rate sped up from 7.2% to 7.7%.

Lending in the business sector as business credit expanded by 1.1%, a slower rate than June’s 1.6% increase. The segment’s annual growth rate increased from June’s +0.6% to +2.4%.

Monthly growth in the investor-lending segment slowed to a halt in early 2018. Shortly into the 2019/20 financial year, monthly growth rates slipped into the red before posting a series of flat or near-flat results until late 2020. Growth rates became positive again from December 2020. In July, net lending grew by 0.3%, in line with June’s growth rate. The 12-month growth rate increased from 2.0% to 2.3%.                                   

Total personal loans contracted by 1.0% following a 0.7% decrease in June, with the annual contraction rate slowing from June’s rate of 6.3% to 5.9%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.

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