Summary: Private sector credit grows at 0.4% in May; above expected figure; annual growth rate rises from 1.4% to 1.9%; further increases expected on housing loan data, higher business confidence; housing credit growth continues, business loans up, personal loans up.
The pace of lending to the non-bank private sector by financial institutions in Australia has been trending down since late-2015. Private sector credit growth appeared to have stabilised in the September quarter of 2018 but the annual growth rate then continued to deteriorate through to the end of 2019. The early months of 2020 provided some positive signs but they disappeared in April 2020.
According to the latest RBA figures, private sector credit growth accelerated In May, rising by 0.4%. The result was above the generally expected figure of 0.3% and faster than April’s 0.3% increase after revisions. On an annual basis, the growth rate increased from 1.3% in April to 1.9%.
Commonwealth Government bond yields hardly moved on the day. By the close of business, 3-year and 10-year ACGB yields remained unchanged while the 20-year yield finished 1bp higher at 2.11%.
“We expect further increases in credit growth over coming months. Housing loan approvals point to solid increases in both owner-occupier and investor credit growth, while business lending should be supported by stronger confidence and spending intentions, as well as the Government’s tax incentives for investment,” said Morgan Stanley Australia strategist Chris Read.
Owner-occupier loans accounted for about two-thirds of the net growth over the month while investor loans accounted for much of the balance. Business loans and personal debt both grew modestly.
The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.7% over the month, slightly faster than April’s 0.6% increase. The sector’s 12-month growth rate sped up from 6.2% to 6.6%.
Growth rates in the business sector resumed as total business credit expanded by 0.2%, in contrast to April’s 0.3% contraction. The segment’s annual growth rate remained negative, although its contraction rate slowed from April’s 3.0% to 2.0%.