Private sector credit; Credit cards - CommSec
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Economics | November 29 2019
Annual credit growth hits 9½-year low
Credit card debt at 9½-year lows
Private sector credit; Credit cards
Lending: Private sector credit (effectively outstanding loans) rose by 0.1 per cent in October after lifting
0.2 per cent in September. Annual credit growth fell from 2.7 per cent to a 9½-year low of 2.5 per cent.
Credit cards: According to APRA, loans by deposit taking institutions to households via credit cards fell
from $37.7 billion in September to a 9½-year low of $37.5 billion in October. Credit card lending is down by
a record 6.6 per cent over the year (biggest fall in over 14 years).
Credit card data is important for the retail and financial sectors.
What does it all mean?
Aussie retailers are increasingly embracing Black Friday and Cyber Monday sales. The likes of JB Hi-Fi,
Woolworths, David Jones and even Myer have joined established e-commerce giants’ Amazon and eBay offering
online discounts across a range of goods. And the battle for our ‘hard earned coin’ has intensified with consumers
reluctant to spend on ‘big ticket’ items given modest wage growth. Retailers will be hoping that Aussies will be
encouraged to spend ahead of the festive season using their debit cards or ‘buy now, pay later’ payment methods
with credit cards out of favour.
According to CoreLogic data, home prices in Sydney and Melbourne are up by 8.5 per cent since the Federal
Election. And increased buyer demand - with borrowing costs at 60-year lows - is reflected in the 17 per cent lift in
new owner-occupier home lending since the May lows. The pass-through from the Reserve Bank’s three quarter
per cent rate cuts since June has been modest with repayments slow to adjust. But the Reserve Bank has
recently stated in its November Board meeting minutes that, “the increase in new loans over recent months had
been accompanied by faster repayment of existing loans, as usually occurs in the months immediately following
an interest rate reduction.” Either way, annual housing credit growth is the slowest on record, pulled down by
falling investor credit.
Perhaps even more troubling for Reserve Bank policymakers is the ongoing weakness in business credit growth.
In fact, business credit fell by 0.1 per cent in October – the first decline since January 2017. And the annual
growth rate fell from 3.3 per cent to a 5½-year low of 2.7 per cent.
Aussie businesses are fixated on their balance sheets, concerned about consumer demand, profit margin
pressures and rising labour costs. Demand for funding by large businesses has receded. And small businesses,
in particular, are still contending with challenging business conditions (and greater compliance) amid the
economic slowdown. The Reserve Bank has received reports that credit conditions for SMEs remain tight. It is
hoped that lower borrowing costs and signs of a stabilisation in the economy will eventually encourage ‘Corporate
Australia’ to once again increase investment in capital and equipment, but the outlook for the services and non-
Ryan Felsman, Senior Economist (Author)
Twitter: @CommSec
This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but non guaranteed subsidiary of Commonwealth Bank of Australia
ABN 48 123 123 124. Important disclosures are included in the Important Information and Disclaimer for Retail Clients on the final page of this report.
Economic Insights: Annual credit growth hits 9½-year low
mining sectors - more broadly – appear more challenging if
yesterday’s business investment intentions survey are an
guide.
What do the figures show?
Private sector credit - October
Private sector credit (effectively outstanding loans) rose by 0.1
per cent in October after lifting by 0.2 per cent growth in
September and August. Annual credit growth fell from 2.7 per
cent to a 9½-year low of 2.5 per cent.
Housing credit grew by 0.3 per cent in October. And the annual
growth rate fell from 3.1 per cent to 3.0 per cent – the slowest
growth rate on record.
Owner occupier housing credit rose by 0.4 per cent in October
to stand 4.8 per cent higher over the year – equalling the
weakest annual growth rate in the past 5½ years.
Investor housing finance was flat in October with the annual decline the biggest on record at -0.2 per cent.
Personal credit fell by 0.6 per cent in October after falling by 0.7 per cent in September. Lending fell by 4.7 per
cent over the year – the biggest annual decline in a decade.
Business credit fell by 0.1 per cent in October – the first decline in 33 months. And the annual growth rate fell from
3.3 per cent to a 5½-year low of 2.7 per cent.
The M3 money aggregate rose by 0.5 per cent in October and Broad Money also lifted by 0.5 per cent. Annual
growth of the M3 money aggregate rose from 3.8 per cent to 4.0 per cent with the Broad Money annual growth
rate up from 3.9 per cent to 4.2 per cent.
Loans and advances by banks grew by 3.3 per cent in the year to October, down from 3.6 per cent in the year to
October.
According to APRA, loans by deposit taking institutions to households via credit cards fell from $37.7 billion in
September to a 9½-year low of $37.5 billion in October. Credit card lending is down by a record 6.6 per cent over
the year (biggest fall in over 14 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?
The lack of a credit pulse across the Australian economy reflects both consumer and business caution. Stimulus
is expected to eventually lead to a pickup in credit growth, but the missing ingredient in all of this is confidence.
Consumer sentiment is at 4-year lows and business confidence remains stuck below its long-run average,
according to the most recent NAB survey.
Much hinges on the global backdrop around trade, but clearly Aussie consumers are more worried about their
own pay packets, ability to pay their bills, mortgage debt and job
security. The consumer ‘straightjacket’ is spilling over into the
business sector. Most consumers are also small business owners
and weak consumer demand and still-difficult access to loans are
the biggest hurdle to business confidence and spending.
Commonwealth Bank Group economists have pencilled in a rate
cut in February 2020. But with limited conventional monetary
policy ammunition at its disposal, the Reserve Bank would prefer
to see additional fiscal initiatives – such as infrastructure spending
and tax cuts - potentially be announced by the Federal
Government to prop up economic activity.
Ryan Felsman, Senior Economist, CommSec
Twitter: @CommSec
November 29 2019 2
Economic Insights: Annual credit growth hits 9½-year low
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November 29 2019 3
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