Summary: Private sector credit flat in October; just under expectations; driven by “surprise slowdown in housing credit”; continued steady growth in owner-occupier segment, offset by falls in business loans, personal debt; housing sector lending “responding to lower rates”; credit growth “likely passed the low point in this cycle.”
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 and they have not re-emerged as yet.
According to the latest RBA figures, private sector credit remained unchanged in October. The result was under the generally expected figure of 0.1% but the same as September’s flat result after it was revised down from 0.1%. The annual growth rate slowed to 1.8% from September’s comparable rate of 1.9% after revisions.
“The slowing, compared to the month prior, was driven by a surprise slowdown in housing credit growth. Given the strength of the housing finance numbers in recent months, we had expected to see housing credit growth lift in October,” said ANZ economist Hayden Dimes.
Owner-occupier loans continued to grow steadily while business loans and personal debt fell again. Growth in the investor lending segment was barely above zero.
Long-term Commonwealth bond yields remained unchanged on the day, ignoring lower US Treasury yields at the close of trading on Friday night. At the close of business, 3-year, 10-year and 20-year ACGB yields finished at 0.17%, 0.90% and 1.54% respectively.
Westpac senior economist Andrew Hanlan noted Australia’s record-low interest rates were helping. “One positive is that the interest-rate-sensitive housing sector is responding to lower rates. New lending for housing jumped by 38% over the four months to September, more than reversing the sharp fall over April and May…That has lending 14% higher than at the end of 2019.”
The traditional driver of loan growth rates, the owner-occupier segment, grew by 0.4% over the month, down from September’s 0.5%. The sector’s 12-month growth rate remained at 5.4%.