Summary: Private sector credit up 0.8% in August, greater than 0.6% expected; annual growth rate accelerates from 9.1% to 9.3%; fastest annual pace since October 2008; business loans account for over 55% of net growth.
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. That downtrend ended later in the same year and now annual growth rates are above the peak seen in the previous decade.
According to the latest RBA figures, private sector credit increased by 0.8% in August. The result was greater than the 0.6% increase which had been generally expected but in line with July’s rise. On an annual basis, the growth rate accelerated from 9.1% in July to 9.3%.
Westpac senior economist Andrew Hanlan noted the result “is the fastest annual pace since October 2008, albeit it is well below the 2007 pre-GFC peak of 16.5%.”
Commonwealth Government bond yields fell on the day, following the lead of US Treasury markets overnight. By the close of business, the 3-year ACGB yield had lost 7bps to 3.67%, the 10-year yield had shed 5bps to 3.92% while the 20-year yield finished 6bps lower at 4.13%.
In the cash futures market, expectations regarding future rate rises softened slightly. At the end of the day, contracts implied the cash rate would rise from the current rate of 2.31% to average 2.695% in October and then increase to an average of 3.09% in November. May 2023 contracts implied a 4.09% average cash rate while August 2023 contracts implied 4.095%.
Business lending accounted for over 55% of the net growth over the month while owner-occupier lending accounted most of the balance. Investor loans and personal loans both increased a little.
The traditional driver of overall loan growth, the owner-occupier segment, grew by 0.6% over the month, up from July’s 0.5% increase. The sector’s 12-month growth rate slowed again, this time from 8.3% to 8.0%.
Total lending in the business sector increased by 1.2%, down from the 1.5% increase recorded in July. Growth on an annual basis accelerated from 13.4% to 14.1%.
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 mid-2020. In August, net lending grew by 0.5%, up from the 0.4% rise in July. The 12-month growth rate ticked up from 6.5% to 6.6%.
Total personal loans grew by 0.3%, in line with July’s result, resulting in a slowing the annual contraction rate from 1.5% to 0.6%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.