New lending hits 71⁄2-year highs: CommSec's Craig James

New lending hits 71⁄2-year highs: CommSec's Craig James
New lending hits 71⁄2-year highs: CommSec's Craig James
GUEST OBSERVER
 
The past week has been a turning point in the economic cycle. A raft of strong indicators has confirmed that economic momentum is picking up, reducing the need for lower interest rates. Data this week has shown strong employment growth, increased consumer confidence and solid business conditions. And the latest figures out today show that lending has hit 71⁄2 year highs, underpinned by stronger borrowing by businesses. 

If businesses are borrowing and employing more staff then they are likely spending and investing. Businesses are clearly more confident and embracing opportunities again.

The Reserve Bank has patiently waited for businesses to get their mojos back. Well, it’s happening. A more stable political and economic environment has laid the groundwork for businesses to get back to business.

It’s taken some time but new loans are almost back to record levels. But while businesses are less fearful about taking on debt, consumers remain cautious. Credit card debt is still lower than a year ago and personal lending is falling in trend terms near the fastest pace in almost four years.

Aussie consumers are only really prepared to take on debt to buy cars (more generally, new cars) and homes. New loans to buy cars hit record highs over the year to September while new housing loans were also at historic highs over the same period. 
 
New lending hits 71⁄2-year highs: CommSec's Craig James
 

What do the figures show?

Credit card lending:

Figures released from the Reserve Bank show that the average credit card balance rose by $5.20 (0.2%) to $3,135.70 in August. Compared with a year ago, the average credit card balance was down 1.5%. In smoothed terms (12 month average) the average balance was down by 0.7% – the biggest fall in 13 months.

Of credit cards attracting interest charges, the average outstanding balance fell by $11.80 in September to a near 10-year low of $1,979.00. The average balance accruing interest is down by 6.8% on a year ago. In smoothed terms (12 month average) the average balance was down by 5.0% on a year ago – an 11-month low.

The average credit card limit rose by $5.80 (or 0.1%) to $9,067.70 in September. The average credit card limit rose by 0.2% in the year to September.

Usage of credit card limits lifted from a 14-year low of 34.5% in August (lowest since November 2001) to 34.6% in September.

The average repayment per credit card rose from $1,599.10 to $1,610.10 in September. On average, there were 11.8 transactions made per each credit card account in September, up from 11.6 a year ago. The average value of purchases was $128.01 in September with the rolling annual average up from a 101⁄2 year low of $130.96 to $131.29 in September.

The number of cash advances recorded a 1.3% annual fall in smoothed (12-month average) terms in September.

Debit card lending

The number of debit card accounts rose by 3.7% in the year to September to 41.0 million.

The number of purchases and cash-out transactions made with debit cards in August were up by 12.8% on a year ago. The annual growth rate has averaged 12.0% over the past two years.

On average there were 8.9 transactions made per debit card in September, up from 8.2 a year ago. The average value of a transaction was $53.26 with the rolling annual average at $53.91 – a record (12-year) low.

Lending finance

Total new loans (personal, business, housing & lease) rose by 6.4% in September to a 71⁄2-year high of $75.3 billion. It was the biggest monthly rise in lending in eight months.

Housing finance: The seasonally adjusted measure of construction and new purchases rose by 3.0% in September while alterations & additions rose by 0.9%. Home loans are up 22.9% on a year.

Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments rose by 9.5% in September after falling by 4.1% in August and falling by 4.3% in July. Revolving credit commitments rose by 8.7% while fixed lending commitments rose by 9.8%. Business loans are up 14.1% over the year.

Personal finance: The seasonally adjusted series for the value of total personal finance commitments fell by 0.8% in September, the third straight fall. Revolving credit commitments rose by 3.0% and fixed lending commitments fell by 3.2%. Personal loans are down 3.4% over the year. Within personal fixed finance commitments, finance for used cars was down 1.8% on a year earlier while loans for new cars were up by 12.4%. Loans for residential blocks of land were down by 14.8% on a year ago – the 11th consecutive annual decline.

Lease finance: Lending fell by 0.5% in September. Lease finance rose by 8.8% over the year. 

Click to enlarge

New lending hits 71⁄2-year highs: CommSec's Craig James

 

What is the importance of the economic data?

The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

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?

Businesses are borrowing again – but they are taking on debt quietly and with purpose. Consumers are also thoughtful when it comes to debt – there is clearly an inherent degree of conservatism involved.

The latest lending data is encouraging for investors of banks and other finance providers.
 
The latest data confirms that the Reserve Bank can stay on the interest rate sidelines. 
 
New lending hits 71⁄2-year highs: CommSec's Craig James
 
Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Tags: 
Interest Rates Residential Property

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