Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 1 June 2016

Business credit growth hits a 7 1/2 year high

Credit expands

More positive news for the economy as the Reserve Bank of Australia reported that annual credit growth expanded to 6.7 per cent, the strongest result since 2008.

The result was predominantly driven by business credit which rose by 7.4 per cent, itself an 87-month high.

Owner-occupier housing credit also continued to rise by 7.3 per cent, its strongest pace since August 2010. 

On the other hand, housing credit growth to investors continues to fade, now down to just 6.5 per cent from a peak of 11 per cent as recently as June 2015.

This is well below the 10 per cent supervisory threshold for investor credit growth, potentially leaving some room for a rebound in this sector.

Total housing credit growth is consequently sliding back towards around 7 per cent per annum. 

Growth in personal credit is going nowhere fast, having actually gone backwards over the year to April. Something doesn't stack up here - perhaps it's related to the use of offset accounts and mortgage buffers? I don't know. 

Money money money...

Total annualised credit growth has eked out a new post-financial crisis high.

The monetary aggregates stats showed a strong double-digit rate of growth in deposits (other than term deposits), which is a boon to funding requirements.

Business credit improving

Total credit outstanding has surged beyond $2.55 trillion, and it is good to see that business credit is beginning to pick up the pace.

The chart below shows that the total stock of outstanding credit has doubled since 2005.

Thus if you owned the right kind of assets - not houses in mining towns and resources regions - you should have done very well. 

It has been a popular narrative that banks are holding back from lending to productive businesses in favour of writing mortgages and home loans, but in reality that's not a decision-making process that lenders go through.

In any event this was a strong monthly result for business credit, and with few apparent blips along the way credit to the business sector now appears to be tracking nicely. 

Home loans pass $1,000,000,000,000

Outstanding mortgage debt to homeowners passed $1 trillion for the first time in April, with lenders now increasingly targeting the owner-occupier sector.

On the other hand lending to the investor sector has noticeably been slowed, although this has not stopped total housing credit outstanding passing $1.5 trillion (this sits against residential housing assets of about $6.5 trillion). 

The wrap

A very promising set of numbers for business lending. And that's great to see.