Summary: Private sector credit up 0.6% in April, greater than expected; annual growth rate slows from 6.8% to 6.6%; Westpac: business loan growth a one-off, broader outlook remains subdued; bond yields down, rate-cut expectations soften slightly; business lending segment accounts for 60% of net growth.
The pace of lending growth in 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 annual growth rates shot up through 2022, peaking in October.
According to the latest RBA figures, private sector credit increased by 0.6% in April. The result was greater than the 0.3% increase which had been generally expected as well as March’s 0.2% rise after it was revised down from 0.3%. On an annual basis, the growth rate slowed from 6.8% to 6.6%.
“Given the high likelihood of April’s monthly outcome for business being a one-off and the approaching weakness in activity, the broader outlook for credit growth remains subdued,” said Westpac economist Ryan Wells.
Commonwealth Government bond yields moved lower on the day following significant falls of US Treasury yields overnight. By the close of business, the 3-year ACGB yield had lost 6bps to 3.37%, the 10-year yield had shed 8bps to 3.61% while the 20-year yield finished 4bps lower to 4.03%.
In the cash futures market, expectations regarding rate cuts in 2024 softened a touch. At the end of the day, contracts implied the cash rate would rise from the current rate of 3.82% to average 3.895% in June and then to 3.985% in July. February 2024 contracts implied a 3.94% average cash rate while May 2024 contracts implied 3.795%, 2bps less than the current rate.
Business lending accounted for about 60% of the net growth over the month, while lending in the owner-occupier segment accounted for about 25%. Investor lending accounted for the balance.
The traditional driver of overall loan growth, the owner-occupier segment, grew by 0.4% over the month, up from the 0.3% growth rate in March. The sector’s 12-month growth rate slowed again, this time from 6.0% to 5.8%.
Total lending in the non-financial business sector increased by 1.1%, substantially faster than the 0.2% increase recorded in the previous month. Growth on an annual basis remained steady at 10.6%.
Monthly growth in the investor-lending segment slowed to a near-halt in early 2018 and essentially stayed that way until mid-2021. In April, net lending grew by 0.3%, unchanged from March, taking the 12-month growth rate from 4.5% to 4.2%.
Total personal loans rose by 0.1%, in contrast with March’s figure of -0.3%, taking the annual growth rate from 0.0% to -0.3%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.