October credit growth strongest since August 2016

Summary: Private sector credit grows by 0.5% in October, slightly below +0.6% expected; annual growth rate rises from 5.3% to 5.7%; annual credit growth at strongest pace since August 2016; growth “likely to remain elevated” given latest business capex plans; owner-occupier loans account for half net growth, business loans another third; investor loans up modestly again, personal loans flat.

The pace of lending to the non-bank private sector by financial institutions in Australia followed a steady-but-gradual downtrend from late-2015 through to early 2020 before hitting what appears to be a nadir in March 2021. Recent months’ figures indicate the downtrend is over and annual growth rates are now not far from the peak rate seen in the middle of the last economic expansion.

According to the latest RBA figures, private sector credit growth increased by 0.5% in October. The result was slightly below the generally expected figure of 0.6% as well as September’s 0.6% increase. On an annual basis, the growth rate increased from September’s rate of 5.3% to 5.7%.

“Lockdowns have two impacts on credit; to boost the business segment but to dent the housing sector. Currently, the former force is proving to be more powerful than the latter, driving annual credit growth up to its strongest pace since August 2016,”said Westpac senior economist Andrew Hanlan.

The report was released on the same day as October’s dwelling approvals figures and Commonwealth bond yields fell noticeably on the day. By the end of it, the 3-year ACGB yield had shed 4bps to 1.05%, the 10-year rate had lost 6bps to 1.70% while the 20-year yield finished 7bps lower at 2.17%.

“Given the latest capex plans from businesses for 2021/2022, business credit growth is likely to remain…elevated,” said ANZ senior economist Adelaide Timbrell.

Owner-occupier loans accounted for just under half of the net growth over the month, while business loans accounted for another third. Investor loans again grew quite modestly while total personal debt remained unchanged.

The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.7% over the month, slightly slower than September’s 0.8% increase. The sector’s 12-month growth rate sped up from September’s rate of 8.7% to 9.0%.

Total lending in the business sector grew by 0.5%, somewhat slower than August’s 0.7% increase. The segment’s annual growth rate increased from September’s revised rate of 4.5% to 5.3%.

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 October, net lending grew by 0.3%, in line with growth rates in August and September. The 12-month growth rate accelerated modestly from September’s rate of 2.4% to 2.6%.                                    

Total personal loans remained unchanged in October following a 0.7% fall in September while the annual contraction rate slowed from 5.3% to 4.6%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.

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