Today’s ABS lending figures contain some good news for the health of financial markets, and a partial vindication of the RBA’s interest rate strategy.
That’s assuming the trends identified today hold, because this is a snapshot of Australia before recent interest rate rises.
The news was mixed on overall lending levels, with housing finance flat and personal finance rising in trend terms but falling on seasonally-adjusted figures. But there are the faint stirrings of life in the non-bank residential mortgage sector, which in October received a further $8b support from the Government. It may not look much in the graph below but there was a half-a-per cent increase in market share of non-bank lenders in September.
It’s not much compared to the sector’s former levels of ~13% prior to the onset of the financial crisis, but the dominance of the banks in mortgage lending appears to have peaked and in now trending downward.
September also saw a rise in commercial lending, with an 8% jump in seasonally-adjusted terms and a 1% rise in trend terms. Commercial lending, at just below $30b a month, is still at 2006 levels, way down on the massive pre-GFC peak of $45b a month, but now heading upwards, suggesting businesses are both willing and — crucially, given the Big Banks’ dominance of lending — able to borrow.
One of the RBA’s tasks is to return monetary policy to a more neutral setting while ensuring the commercial lending trend continues to head upward.
It should be easier as the First Home Owners’ Boost grants come to an end and housing finance slows down. But the impact of recent interest rate rises on commercial lending will be a key indicator in figures for the rest of this year. Too-rapid an increase rates could choke up the rise in commercial lending, with consequences for job creation and economic growth.
September also saw a rise in commercial lending, with an 8% jump in seasonally-adjusted terms and a 1% rise in trend terms. Commercial lending, at just below $30b a month, is still at 2006 levels, way down on the massive pre-GFC peak of $45b a month, but now heading upwards, suggesting businesses are both willing and — crucially, given the Big Banks’ dominance of lending — able to borrow.
One of the RBA’s tasks is to return monetary policy to a more neutral setting while ensuring the commercial lending trend continues to head upward. It should be easier as the First Home Owners’ Boost grants come to an end and housing finance slows down. But the impact of recent interest rate rises on commercial lending will be a key indicator in figures for the rest of this year. Too-rapid an increase rates could choke up the rise in commercial lending, with consequences for job creation and economic growth.
I would not read too much into the lending figues Bernard however the figures are better than nothing. The bond market and global inter-bank lending is still in a pretty bad and sorry state.
Large mortgagors still have a difficult task in rolling over existing deals/lends. If it wasn’t hard enough to deal with valuers in the current market, see how hard it is to extract funding from the banks. After paying a very chunky approval fee (which is padded with risk) the banks are now insisting on so many covenants it makes borrowing almost not worth it.
Try asking the likes of: fund mangers that are geared at pre GFC levels, companies that have syndicated / club deals, property developers with large land banks etc etc if they think the debt market is improving. Conservative gearing levels pre GFC were anywhere from 65% to 75%, now they are anywhere from 50% to 60%. Unless you have the ability to raise capital, it is pretty hard to come up with equity of up to 50% in this market.
Funding is still pretty tight albeit improving but it doesnt help when bank credit committees, valuers, lawyers etc are all more concerned with covering their backsides. I work for an Investment Bank so I should know! haha
Now that I have had my rant… notwithstanding the lending figures, the cash rate was at an emergency level so they had to move anyway.