Summary: Private sector credit up 0.6% in October, in line with expectations; annual growth rate up from 9.4% to 9.5%; new lending for housing now declining; business loans account for 50% 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 0.6% in October. The result was in line with expectations but slightly slower than September’s 0.7% rise. On an annual basis, the growth rate accelerated from 9.4% to 9.5%. “
The housing market is showing the adverse impacts of sharply higher interest rates,” Westpac senior economist Andrew Hanlan. “New lending for housing is now declining, and declining at a rate of knots, as borrowing capacity is reduced in recognition of higher interest rates.”
Commonwealth Government bond yields moved lower on the day. By the close of business, the 3-year ACGB yield had lost 7bps to 3.18%, the 10-year yield had shed 8bps to 3.53% while the 20-year yield finished 9bps lower at 3.91%.
In the cash futures market, expectations regarding future rate rises softened. At the end of the day, contracts implied the cash rate would rise from the current rate of 2.81% to average 2.97% in December and then increase to an average of 3.14% in February. May 2023 contracts implied a 3.515% average cash rate while August 2023 contracts implied 3.68%.
Business lending accounted for 50% of the net growth over the month, owner-occupier lending accounted just under 40% and investor lending accounted for just over 10%. Personal lending increased slightly.
The traditional driver of overall loan growth, the owner-occupier segment, grew by 0.5% over the month, the same growth rate as in September, August and July. The sector’s 12-month growth rate slowed again, this time from 7.8% to 7.7%.
Total lending in the business sector increased by 0.8%, down from the 1.3% increase recorded in September. Growth on an annual basis accelerated from 14.7% to 15.0%.
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 October, net lending grew by 0.3%, the same rate as in September. The 12-month growth rate slowed from 6.4% to 6.2%.
Total personal loans increased by 0.2%, up from September’s flat result, taking the annual growth rate from 0.1% to 0.3%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.