Demand for business credit eased across Australia in Q4

Veda Quarterly Business Credit Demand Index: December 2013

• Q4 global uncertainty, state economic worries drive lower business confidence.
• Overall growth in business credit enquiries slowed across all states, increasing just 3.8% year on-year.
• Business loan enquiries strong with growth of 8% year-on-year.
• Asset finance enquiries slows to 1.1% growth year on year.

Sydney, Australia, 13 February 2013: Veda, Asia-Pacific's leading provider of consumer and commercial data intelligence and insights today revealed the results of its business credit demand index for the fourth calendar quarter of 2012.  The index, which measures the change in credit demand for the December quarter compared to the same period in 2011, showed that overall business credit demand increased by 3.8% over the past year.
There has been a marked easing in the pace of business credit enquiries - slowing from 6.2% in the September quarter of 2012 to 3.8% in the December quarter of 2012.
"The easing in business credit enquiries occurred during a quarter of great uncertainty and concern - falling commodity prices, "fiscal cliff" issues in the US and a very strong Australian dollar were quite prevalent in the December quarter.  Weak conditions in sectors such as construction, manufacturing and retail have added to this concern and this is being reflected in a more cautious outlook for business confidence in 2013," said Moses Samaha, General Manager of Commercial Credit Risk for Veda.
Growth in overall business credit applications has eased in both mining and non-mining states.   WA (+6.7%) showed the strongest growth followed by QLD (+4.0%) while the NT (+1.4%) showed a slight increase.  Among the non-mining states, NSW (+3.7%) showed the strongest growth, followed by VIC (+3.1%) while enquires in SA (1.4%) and TAS (1.2%) were almost flat.
Growth in business loan applications have been strong over the year, with credit card, loan proposals and mortgage enquiries driving the overall increase of 8% year-on-year.  Among the major states WA (+11.3%) had the largest rise while NSW (+9.8%), VIC (+8.3%) and the NT (+16.7) were also strong.  Tasmania showed a surprising rebound with business loan applications up 12.5% compared to the past year.  South Australia (+4.0%) and QLD (+3.7%) had the softest growth of all states, suggesting that the weakness in sectors such as tourism and construction are weighing heavily on Queensland's economy.
While it is welcome news for business that the RBA has kept interest rates low, Equifax's data suggests that a broader revival is not yet taking hold with business credit demand slowing across both the mining and non-mining states.
"The mining states combined showed business credit growth of only 4.3%, compared with 3.5% in the non-mining states over the year to the December quarter, with both figures down significantly from growth seen in the previous quarter. This is a dramatic shift in the divide that we are used to seeing between these two sectors.
"It is becoming apparent that the RBA activities in the December quarter were clouded by broader economic issues," Samaha added.
Overall levels of trade credit enquiries grew moderately over the past year by 1.9%.   By state, falls have been recorded in NSW (-1.1%), NT (-13.4%) and TAS (-0.3%) with the weakness being driven by reduced enquiries for trade finance and seven day accounts.   States showing positive growth in trade credit were WA (+8.8%), VIC (+2.5%), SA (+9.9%) and QLD (+0.9%).
Asset finance enquiries also eased in December with the level of asset finance enquiries remaining well below its pre-GFC peak, and much lower than the growth rates seen in the prior two quarters.  Within asset finance, strength in personal loan and leasing enquiries has been partially offset by recent weakness in commercial rental and hire purchase.  By state, falls over the past year were recorded in SA (-12.7%), TAS (12.2%) WA (-2.4%), and VIC (-2.5%) but QLD (+8.5%), NT (+9.1%) and NSW (+3.3%) showed an increase.
Small businesses with between 10 and 49 staff continue to be the most credit hungry, when you compare the number of businesses in this category who request credit against the proportion they represent in the broader population. Businesses in their first 4 years of operation and beyond 20 years seem to also have the greatest need or appetite for credit.
Equifax's Business Credit Demand Index has historically proven to be a good indicator of how the overall economy is travelling, with movements in Equifax's Business Credit Demand Index being highly correlated with growth in real GDP, investment in machinery and equipment, and building construction.  The softness in Equifax's latest business credit data suggests the pace of real GDP growth also eased in the December quarter.