Growth in business credit demand undeterred by federal election

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Sydney, Australia, Friday, 8 July 2016: The Veda Quarterly Business Credit Demand Index – measuring applications for business loans, trade credit and asset finance – rose at an annual rate of 1.7% in the June 2016 quarter, reflecting steady growth despite the federal election. 

Released today, the outcome of the Index was driven by an improvement in the rate of growth for trade credit applications, which rose 0.5% in the June quarter. Asset finance applications also experienced steady growth (+3.2%), while business loan growth lost momentum compared to the prior quarter (+1.6%).

As expected, the latest credit data showed a continuation in the trend of weaker overall business credit demand in the mining jurisdictions (-1.5%) compared with the non-mining jurisdictions (+3.2%). This is reflective of the ongoing falls in mining investment, which is likely to continue over the next 12 months.

The Veda Business Credit Demand Index has historically proven to be a lead indicator of how the overall economy is performing. The modest increase in the annual rate of growth in business credit applications illustrated by Veda’s data suggests a cautiously optimistic economic outlook.

Veda’s General Manager, Commercial and Property Solutions, Moses Samaha, said that the steady growth in business credit applications was encouraging, particularly in the face of a long and uncertain election campaign period.

“Historically we have seen a slowdown in business credit demand in the lead up to an election, followed by a rebound when the newly elected government has been established,” Mr Samaha said.

“The fact that this election cycle did not negatively impact credit demand growth is a good sign, and indicates that the next quarter could be strong,” he added.

Given the historical relationship between the Veda Business Credit Demand Index and growth in real GDP, Veda’s latest business credit data for the June quarter indicates a continued easing of growth in the Australian economy from the 3.1% growth in GDP recorded by the ABS in the March quarter.

Growth in overall business credit applications rose modestly in the June quarter (+1.7%).  Demand for business credit was strongest in the ACT (+4.9%), followed by NSW (+4.3%) and Victoria (+2.7%). Tasmania (-2.1%) and SA (-0.5%) both recorded falls in business credit applications. The mining jurisdictions continued to display a more subdued business credit environment, with business credit applications falling in the NT (-3.3%), WA (-1.9%) and Queensland (-1.3%), in the June quarter.

Business loan application growth eased in the June quarter (+1.6%). Tasmania once again recorded the strongest rate of growth (+9.1%), followed by the ACT (+8.0%), NSW (+4.8%), and Victoria (+2.1%), which all saw positive growth in business loan applications. SA (-5.2%) continued to show a fall. All of the mining jurisdictions recorded falls in business loan applications, with the NT (-4.8%) seeing the largest fall, followed by Queensland (-1.9%) and WA (-0.8%).

Within business loans, growth in lending proposals (+6.8%) eased in the June quarter, along with credit cards (-2.5%). Mortgage applications (+1.3%) remained subdued for the fourth consecutive quarter and were well below an annual rate of growth of 21.4% recorded in the June quarter of 2015.

“Banks and other business lenders are predominantly taking a conservative view when it comes to extending credit, particularly in the property and construction space,” Mr Samaha said.

“The general nervousness around these industries is reflected in the flat commercial mortgage application figures, which have seen a significant decline since the high of a year ago,” he added.

Trade credit applications recovered in the June quarter (+0.5%), up from -1.7% in the previous quarter. This recovery was driven by NSW (+3.4%), Victoria (+1.6%), and SA (+1.1%), where the annual rate of growth in trade credit applications remained positive, despite slowing from the previous quarter.

The ACT (-9.0%) and Tasmania (-6.2%) recorded the sharpest falls in trade credit applications in the June quarter. Trade credit applications also fell in WA (-3.0%), Queensland (-2.4%), and the NT (-1.8%).

The incremental recovery in trade credit applications largely reflects movements in the main category of 30 day accounts (-1.4%), which has shown an improvement from an annual rate of decline of -1.7% in the March quarter of 2016.  A rise was also seen in 7 day accounts (+2.6%) in the June quarter.

Asset finance experienced steady growth in the June quarter (+3.2%). In the non-mining jurisdictions, growth in asset finance applications remained positive in the ACT (+17.9%), SA (+5.2%), Victoria (+4.8%) and NSW (+4.6%); while Tasmania (-12.1%) saw a large fall. The mining jurisdictions displayed a weaker appetite for asset finance applications, with the NT (-3.4%) and WA (-2.1%) both showing contractions and Queensland (+1.1%) experiencing only a modest rise.

There were substantial differences in the volume of demand for asset finance by account type. Applications for hire purchase (-16.7%) fell significantly for the second consecutive quarter and weighed heavily on the overall result for asset finance applications.

In contrast, there was healthy demand for other account types within asset finance. Personal loans (+13.2%), leasing (+12.0%), commercial rental (+18.8%), and bill of sale (+17.1%) all saw strong growth in the June quarter.

“Moderate growth in asset finance was expected in the lead up to end of the fiscal year. Some businesses may have accelerated their spending to ensure it occurred in FY16, which could have helped drive asset finance growth,” Mr Samaha said.

“Similarly, the growth may have been aided by small businesses wanting to take advantage of the accelerated depreciation rules for assets under $20,000, which was implemented as part of last year’s federal budget and ended on 30 June this year,” he added. 

NOTE TO EDITORS

The Veda Quarterly Business Credit Demand Index measures the volume of credit applications that go through the Veda Commercial Bureau by credit providers such as financial institutions and major corporations in Australia. Based on this it is a good measure of intentions to acquire credit by businesses. This differs to other market measures published by the RBA/ABS, which measure new and cumulative dollar amounts that are actually approved by financial institutions.

DISCLAIMER

Purpose of Veda media releases:

Veda Indices releases are intended as a contemporary contribution to data and commentary in relation to credit activity in the Australian economy. The information in this release is general in nature, is not intended to provide guidance or commentary as to Veda’s financial position and does not constitute legal, accounting or other financial advice. To the extent permitted by law, Veda provides no representations, undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided, and specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.