Tighter bank lending standards showing impact: Savanth Sebastian
It is important to realise while housing activity will continue to be the backbone of the economy over the coming year, it is starting to show signs of starting to cool – especially when it comes to irrational exuberance. If there is an anticipated pullback in home lending policymakers would be hoping that activity amongst the business sector lifts from here.
There would be mild disappointment in the fall in business loans in July. Commercial loans are now down 5% on a year ago. Business conditions are healthy, however businesses are still rather tentative about borrowing. The key driver of future lending will be an ongoing improvement in labour market conditions, rise in business hiring intentions and lift in consumer confidence.
What do the figures show?
Lending finance
Total new lending commitments (housing, personal, commercial and lease finance) fell by 0.1% in August to $74.1 billion after a 1.3% rise in June. New loans are down 1.1% over the year.
Housing finance: The seasonally adjusted measure of construction and new purchases rose by 2.2% in July while alterations & additions rose by 0.9%. Home loans are up 13.4% on a year.
Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments fell by 2.7% in July. Revolving credit commitments fell by 13% while fixed lending commitments fell by 0.9%. Business loans are down 5% over the year.
Personal finance: The seasonally adjusted series for the value of total personal finance commitments fell by 2.6% in July after rising by 0.9% in June. Revolving credit commitments rose by 2.6% and fixed lending commitments fell by 5.8%. Personal loans are down 12.7% over the year. Within personal fixed finance commitments, finance for used cars was down 2.3% on a year earlier while loans for new cars were up by 8.8%.
Lease finance: Lending rose by 60.2% in July. Lease finance rose by 68.9% over the year. What is the importance of the economic data?
Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
What are the implications for interest rates and investors?
The Reserve Bank would be comfortable about the mix of borrowings: Aussie businesses are tentatively borrowing - in a measured way. Still, the Reserve Bank would be watching the recent drop in consumer confidence a lot more closely.
The weaker Aussie dollar is providing solid stimulus to the economy at present and the Reserve Bank will continue to assess the impact on the economy over the next few months. CommSec expects no change to interest rates over the coming year.
Savanth Sebastian is an economist for CommSec. You can follow him on Twitter here.