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Tuesday 13

November, 2018 7:15 AM



Strongest lift in non-bank lending in 11yrs

Strongest lift in non-bank lending in 11yrs

Private sector credit (effectively outstanding loans) rose by 0.4 per cent in September after a 0.5 per cent rise in August.

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31.10.2018 03:49 PM

Strongest lift in non-bank lending in 11 years
Weakest annual personal lending in 8½ years
Private sector credit; China data

Lending: Private sector credit (effectively outstanding loans) rose by 0.4 per cent in September after a 0.5 per cent rise in August. Credit was up 4.6 per cent over the year, up from the 4.5 per cent in August.

Investor housing: Investor housing finance rose by 0.1 per cent in September with annual growth at the slowest rate on record of 1.4 per cent.

Non-banks: Loans and advances by non-bank financial intermediaries rose by 11.4 per cent over the year to September, up from 10.3 per cent in August and the strongest annual growth in 11 years.

Personal loans: Personal credit was flat in September, but was down 1.5 per cent over the year – the equal weakest annual growth rate in 8½ years.

China purchasing managers’ indexes: China’s official manufacturing purchasing managers’ index fell by 0.6 points to 50.2 points (survey: 50.6 points) in October - the lowest level since July 2016. And the services gauge fell by 1 point to 53.9 points (survey: 54.9 points) in October. A level above 50 denotes in expansion in activity.

What does it all mean?

The continued slowdown in housing credit will continue to hog the headlines as bank lending standards tighten amid greater regulatory oversight. The overall flow of new lending is moderating, led lower by reduced investor appetite for Sydney and Melbourne property. In fact, the annual growth rate of investor credit was at record lows in September.

And credit to owner-occupiers is easing, despite some support from first home buyers, to the slowest annual growth rate in 2½ years. The proportion of overall financing commitments to first home buyers - at around 18 per cent - is near six-year highs. So falling home prices and better affordability are encouraging younger Aussies to buy their first abode with the average variable mortgage rate around 5.3 per cent – still near the lowest level since the 1960s.

Given modest wages growth and elevated mortgage debt, Aussies are becoming increasingly cautious about adding to their debt loads. Personal credit growth fell by 1.5 per cent over the year to September, the equal weakest pace of growth since November 2009. Also, credit card usage and other lines of credit, together with loan offset accounts often provide individuals with greater loan flexibility.

Non-bank lending continues to pick-up. Annual lending growth at over 11 per cent is now the strongest since October 2007. While greater competition in the financial sector is welcomed, Reserve Bank Assistant Governor Michele Bullock recently said that “lending in the less regulated sector could increase macro-financial risks.” With non-bank lenders increasingly filling the lending gap amid a tightening supply of credit by the major banks, average non-bank issuance of residential mortgage backed securities is around $4 billion.

What do the figures show?
Private sector credit

Private sector credit (effectively outstanding loans) rose by 0.4 per cent in September after a 0.5 per cent rise in August. Credit was up 4.6 per cent over the year, up from the 4.5 per cent in August.

Housing credit grew by 0.3 per cent in September after lifting by 0.4 per cent in August and July. But the annual growth eased from 5.4 per cent to 5.2 per cent – the lowest growth rate for 4½ years.

Owner occupier housing credit rose by 0.5 per cent in September to stand 7.3 per cent higher over the year – the weakest growth rate for 2½ years.

Investor housing finance rose by 0.1 per cent in September with annual growth at the slowest rate on record of 1.4 per cent.

Personal credit was flat in September, but was down 1.5 per cent over the year – the slowest annual growth rate in 8½ years.

Business credit rose by 0.6 per cent in September after lifting by 0.8 per cent in August. Annual growth lifted from 3.8 per cent to 4.4 per cent – the strongest pace of growth in 13 months.

Both the M3 money aggregate and Broad Money were up by 0.1 per cent in September to be up 2.2 per cent and 2.1 per cent, respectively, for the year. Previously in June and July, Broad Money and M3 were growing at the slowest annual growth rates in 26 years.

Term deposits with banks fell by $2.1 billion to $600.6 billion in September. But annual growth rose from 6.0 per cent to 6.1 per cent, a 15-month high.

Loans and advances by banks grew by 4.9 per cent in the year to September, up from 4.7 per cent in the year to August, both up from 4.6 per cent in July, the equal slowest growth rate in 26 years. And loans and advances by non-bank financial intermediaries rose by 11.4 per cent over the year to September, up from 10.3 per cent in August and the strongest annual growth in 11 years.

Deposits at banks fell by 0.2 per cent in September to stand 2.1 per cent higher than a year ago. Previously in June and July the 1.9 per cent annual growth of deposits was the equal slowest rate in 26 years.

What is the importance of the economic data?

Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

What are the implications for interest rates and investors?

There has been a lot of talk about a ‘credit crunch’ emanating from the slowing housing market due to the tightening supply of credit amid greater regulatory oversight of bank’s borrowing criteria by APRA. Lending volumes may be down, but the size of mortgages continues to increase. In fact, the latest AFG Mortgage Index for the March quarter of 2019 the national average loan size increased to a record $509,736, led by increases in NSW, South Australia and Victoria.

The recent lift in business credit growth is encouraging. Non-mining business investment is being supported by a weaker Aussie dollar and still-positive global and domestic economic activity. Business conditions are near record highs, but US-China trade tensions, rising input costs and upcoming elections in Australia may impact capital equipment spending and labour hiring in the coming months.

China’s manufacturing activity is the weakest in over two years. Slumping export orders reflect waning external demand from the US following the implementation of tariffs. President’s Trump and Xi are scheduled to meet at the G20 meeting next month in Argentina. Who is going to blink first? Global growth is slowing on the back of trade tensions and China’s attempts at fiscal stimulus, including tax cuts, reduced red-tape for businesses and increased infrastructure spending will take time to work through the real economy.

CommSec expects Australia’s official cash rate to remain unchanged until late 2019.

Published by Ryan Felsman, Senior Economist, CommSec
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