Summary: Private sector credit grows at moderate rate in March; above expected figure; update confirms credit cycle turned “decisively”; fall in annual rate the result of base effects from March 2020; housing credit growth continues, business & 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 continued at a moderate pace in March, rising by 0.4%. The result was greater than the generally expected figure of 0.3% and faster than February’s 0.2% increase. However, the annual growth rate still slowed from 1.6% in February to 1.0%.
“A month ago, we described the private sector credit cycle at a turning point, with a strong tailwind from policy stimulus. Today’s update provides further confirmation that the credit cycle has turned decisively,” said senior Westpac senior economist Andrew Hanlan.
Owner-occupier loans accounted for about half of the net growth while investor and business loans accounted for much of the balance. Total personal debt grew for the first time in several years.
Commonwealth bond yields moved up on the day. At the close of business, the 3-year yield ACGB had inched up 1bp to 0.27% while 10-year and 20-year yields each finished 3bps higher at 1.70% and 2.42% respectively.
Hanlan noted the fall in the annual growth to 1.0% was the result of “base effects” from March 2020. “This will be the low point in the current cycle and compares with a GFC cycle low of 0.8% in November 2009.”
The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.7% over the month, slightly faster than February’s 0.6%. The sector’s 12-month growth rate accelerated from 5.9% to 6.1%.
Growth rates in the business sector picked up as business credit grew by 0.3%, up from zero in February. However, the segment’s annual growth rate remained negative, its contraction rate increasing from February’s rate of -0.2% to -2.6%.