Summary: Private sector credit up 0.3% in February, less than expected; annual growth rate down from 8.0% to 7.6%; “a challenging year”, appetite for credit “curbed”; bond yields down, rate-cut expectations firm; business lending, owner-occupier segments each account for 40% 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.
According to the latest RBA figures, private sector credit increased by 0.3% in February. The result was less than the 0.4% increase which had been generally expected as well as January’s 0.4% rise. On an annual basis, the growth rate slowed from 8.0% to 7.6%.
“As highlighted previously, it has been a sluggish start to 2023 for private sector credit, in what will be a challenging year,” said Westpac senior economist Andrew Hanlan. “The appetite for credit has been curbed by the RBA’s rapid-fire interest rate tightening cycle and the slowing economy.”
Commonwealth Government bond yields moved lower on the day. By the close of business, the 3-year ACGB yield had shed 4bps to 2.91%, the 10-year yield had lost 6bps to 3.30% while the 20-year yield finished 5bps lower at 3.73%.
In the cash futures market, expectations regarding future rate cuts firmed slightly. At the end of the day, contracts implied the cash rate would rise from the current rate of 3.57% to average 3.60% in April and then increase to an average of 3.66% through May. August 2023 contracts implied a 3.53% average cash rate while November 2023 contracts implied 3.44%, 13bps below the current cash rate.
Business lending accounted for about 40% of the net growth over the month, as did lending in the owner-occupier segment. Investor lending accounted for most of the balance.
The traditional driver of overall loan growth, the owner-occupier segment, grew by 0.4% over the month, the same growth rate as in the previous four months. The sector’s 12-month growth rate slowed again, this time from 6.6% to 6.3%.
Total lending in the business sector increased by 0.4%, down from the 0.5% increase recorded in the previous month. Growth on an annual basis slowed from 12.6% to 11.9%.
Monthly growth in the investor-lending segment slowed to a near-halt in early 2018 and essentially stayed that way until mid-2021. In January, net lending grew by 0.2%, the same rate as in January and December and the 12-month growth rate slowed from 5.1% to 4.8%.
Total personal loans remained unchanged after rounding, down from January’s 0.1%, taking the annual growth rate from 0.4% to 0.3%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.