Summary: Private sector credit up 0.4% in May, in line with expectations; annual growth rate slows to 6.2%; Westpac: credit growth broadly stabilised at subdued pace; bond yields rise considerably; rate-rise expectations firm; owner-occupier lending segment accounts for 45% 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 0.4% in May. The result was in line with expectations but lees than April’s 0.6% rise. On an annual basis, the growth rate slowed from 6.7% to 6.2%.
“Over the past seven months to May 2023, credit growth has broadly stabilised…at a subdued pace….including a 0.4% outcome for May,” said Westpac senior economist Andrew Hanlan.
Commonwealth Government bond yields moved considerably higher on the day following significant rises of US Treasury yields on Thursday night. By the close of business, 3-year and 10-year ACGB yields had both gained 12bps to 3.99% and 4.02% respectively while the 20-year yield finished 11bps higher to 4.30%.
In the cash futures market, expectations regarding further rate rises generally firmed. At the end of the day, contracts implied the cash rate would rise from the current rate of 4.07% to average 4.17% in July and then to 4.32% in August. February 2024 contracts implied a 4.56% average cash rate while May 2024 contracts implied 4.50%, 43bps more than the current rate.
Owner-occupier lending accounted for about 45% of the net growth over the month, while lending in the business segment accounted for about 33%. 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 rate as in April. The sector’s 12-month growth rate slowed again, this time from 5.8% to 5.6%.
Total lending in the non-financial business sector increased by 0.5%, half the rate of increase recorded in the previous month. Growth on an annual basis slowed from 10.6% to 9.7%.
Monthly growth in the investor-lending segment slowed to a near-halt in early 2018 and essentially stayed that way until mid-2021. In May, net lending grew by 0.2%, down from April’s 0.3%, taking the 12-month growth rate from 4.2% to 3.8%.
Total personal loans rose by 0.2%, in line with April’s growth figure, taking the annual growth rate from -0.3% to 0.2%. This category of debt includes fixed-term loans for large personal expenditures, credit cards and other revolving credit facilities.