Credit growth slowing as housing sector cools, responding to tighter lending conditions: Andrew Hanlan
Credit growth has been slowing as the housing sector cools in response to tighter lending conditions.
However, in the September quarter, a burst of strength in the business segment provided some temporary respite.
Total credit grew by 0.4% in the month of September, including a 0.35% rise for housing and a 0.6% expansion in business
Annual credit growth is 4.6% currently, moderating from 5.3% a year ago. Housing growth has eased to 5.2% from 6.6% over this period. Business grew by 4.4% over the past year, up a fraction from 4.2% a year earlier. Personal credit continues to contract, down 0.9% in the year to September 2017 and falling by a further 1.5% over the past year.
Business credit remains volatile around a modest uptrend. The September quarter saw a brisk rise of 2.0%, up sharply from gains in the three previous quarters (0.9%, 0.8% and 0.6%). The pace of the past three months is unlikely to be sustained given the current economic and financial backdrop.
On housing, indicators point to a further cooling of conditions. House prices have turned, moving lower following a strong run, and dwelling approvals are down from the 2016 peak and are likely to move lower still after an extended upswing, to bring them more in line with underlying requirements.
Tighter lending conditions and rising funding costs will continue to weigh on the housing sector over coming months - recall that 3 of the 4 major retail banks raised mortgage rates over August and September.
Momentum in housing credit, as measured by 3 month annualised growth, has slowed progressively from a peak of 6.8% in May 2017 to be 4.7% currently.
Tighter lending conditions were largely directed at the investor market. The upshot is a marked slowing in investor credit growth. For the three months to September, investor credit almost stalled, advancing by only 1.4% annualised.
The slowing in the owner-occupier market has been less pronounced - but the trend is lower. The 3 month annualised pace for owner-occupier housing credit is 6.4% currently, a moderation from a peak of 8.7% last July.
Turning to business credit, this is volatile around a modest uptrend, as noted above. Annual growth is 4.4% currently - three months earlier it dipped to 3.2%.
In 2017, the business mood improved, mirroring the global trend. This has translated into an increase in business investment in the real economy by the non-mining sectors.
Currently, business credit growth is undershooting growth in non-mining business investment, the reverse of the experience in recent years, suggesting a greater reliance by businesses on other sources of funding, including retained earnings.
Andrew Hanlan is a Senior Economist for Westpac