Australian private credit: Investor housing credit momentum has peaked – Westpac

Andrew Hanlan, Economist at Westpac, explains that Australian credit growth to the private sector was relatively soft for a third consecutive month, with weakness in the month once again centred on the volatile business segment.

Key Quotes

‘Total credit grew by 0.3% in March, matching the February outcome and following a 0.2% rise in January. Results for the month of March were mixed by segment, with housing posting a gain of 0.5%, business being flat and personal credit declining by 0.3%.”

“Annual total credit growth is now 5.0%, well below the peak of 6.7% in September 2015. For housing, annual growth is 6.5%, below the 7.5% of late 2015. While for business, annual growth has slipped to 3.4%, down from a high of 7.3% in April 2016.”

“For the March quarter, monthly growth in total credit averaged 0.3%, representing a correction to the above par 0.6% average in the final quarter of 2016.”

“It appears that momentum in investor credit has already peaked, with 3 month annualised growth in March 2017 moderating a little to 8.2%. A further moderation is in prospect. In March, APRA announced additional prudential measures aimed at strengthening lending standards for housing, with a focus on investors. In addition, there have been out of cycle rate increases from the banks.”

“Volatility in business lending has generated what we would describe as a 'stop-start' profile for business credit. In the March quarter 2017, business credit edged 0.5% lower, partially reversing a 2.2% surge in the December quarter. Annual growth has slowed to 3.4%, following outcomes of 4.7% for 2014; 6.4% for 2015; and 5.5% for 2016.”

“Fundamentals point to moderate growth in business credit over the coming months. Business confidence has trended higher in 2017, to be mildly positive, against the backdrop of improved conditions globally. Still relatively low interest rates are supportive and surveys report that finance is relatively 'easy to find'. However, a constraint is that investment in the real economy by the non-mining sectors remains relatively sluggish.”