Australian business lending is accelerating, hinting activity levels are improving

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New lending to Australia’s private sector accelerated modestly in February, according to latest figures released by the Reserve Bank of Australia (RBA).

Over the month, credit expanded by 0.6% in seasonally adjusted terms — higher than the 0.5% increase registered in January — leaving annual growth at 6.6%.

As has been the case for more than a year, the strength was concentrated in housing and business credit, offsetting persistent weakness in personal lending.

From a month earlier, housing credit rose by 0.5%, unchanged from January, leaving it 7.3% higher than a year earlier.

Lending for owner-occupier housing rose 0.6%, leaving the annual rate at 7.1%. It was the largest year-on-year growth seen since September 2010.

As opposed to the trend seen in recent months, lending for housing investment accelerated by the most seen since August 2015, rising 0.6%.

Despite the sharp increase, the annual rate slowed to 7.6%, a level not seen since January 2014 and well below the 10% ceiling targeted by Australia’s banking regulator, APRA.

In what is a pleasing development, and one that adds to evidence that activity levels in Australia’s non-mining sectors are improving, credit to businesses grew by 0.7%, leaving it up 6.5% from February 2015.

Aside from October 2015 where it grew 6.7%, the annual growth rate was the fastest seen since February 2009.

Though credit for housing and businesses was firm, that failed to translate to demand for personal credit. It fell by 0.1%, the second drop in succession, leaving it down 0.3% from a year earlier.

The chart below, created using data from the RBA, reveals the annual growth rates in housing, business and personal lending.

While it would be nice to see personal credit pick up a touch, the rest of the data would please the RBA. Growth in housing credit is moderating while that to businesses continues to trend higher, suggesting business conditions are picking up.

Not quite a Goldilocks scenario, but not far off.

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