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Australian home investment lending is tanking, but business loans are up

Mark Kolbe/Getty Images

Australian private sector credit accelerated fractionally in December with the RBA reporting an increase of 0.5% after seasonal adjustments.

The gain, above the 0.4% increase of November, left the annual expansion in credit at 6.6%.

Over the month housing credit grew by 0.5%, down from 0.6% previously, leaving annual growth at 7.5%.

Lending to owner-occupiers rose by 0.7%, taking the annual expansion to 6.8%, the largest increase seen since December 2010.

As credit to owner occupiers continued to accelerate, lending for housing investment decelerated sharply.

It expanded by 0.3% over the month, the smallest monthly increase since April 2011. The modest increase took the annual rate of growth to 8.5%, below the 10% ceiling targeted by Australia’s banking regulator, APRA.

It was the lowest annual increase since April 2014.

Given the divergence between credit growth to owner-occupiers and investors, it suggests that lenders are finding new ways to classify loans once deemed to be for investment as those for owner occupation.

Adding to sign that the health of Australian businesses continues to improve, credit to corporates rose by 0.5% taking the year-on-year expansion to 6.3%.

The annual rate, 0.1% the level seen in November, was the second largest annual increase seen since February 2009. Only October’s 6.6% annual rate has be stronger over the past 6 years.

Along with other anecdotal evidence, the continued uptrend in business lending is encouraging, and suggests that sectors outside of mining are continuing to perform well.

While credit demand for housing and business grew modestly, that to consumers continued to underwhelm.

For the month personal credit came in flat, leaving the annual rate unchanged form a year earlier. It was the equal lowest level seen since personal credit contracted 0.2% in May 2013.

The chart below reveals the annual percentage change for housing, business and personal lending.

In terms of monetary policy implications, there is little to come from the RBA’s financial aggregates report. Housing and business credit remains solid, helping to offset persistent weakness in personal lending.

Should the trend in business lending continue to improve it will likely be supporting of labour market conditions as well, potentially leading to a modest pickup in personal credit as a consequence.

For an economy looking for consumption to remain solid as Australia’s economic transition unfolds, a small acceleration would be desirable.

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