Following APRA’s actions to slow investor lending, annual credit growth in this sector has fallen very sharply over the past 9 months from 11 per cent to 7 per cent, with undoubtedly more declines to come.
The Reserve Bank’s Financial Aggregates figures for March showed that housing credit has continued to switch its focus towards homebuyers, with annual owner-occupier credit growth increasing to a 66-month high of 7.2 per cent.
The net result is that annual housing credit growth has gradually moderated to 7.2 per cent, from a cyclical peak of 7.5 per cent six months previously.
Overall credit growth in the economy has also eased back to an annual pace of 6.2 per cent.
Business and banking
Business credit growth notched up a result of only 0.3 per cent growth for the month, with the annual pace of growth steady at 6.5 per cent.
This mirrors softening trends suggested elsewhere such as in the ABS lending finance data series, while initial and secondary capital raised on the securities exchange has also slowed in 2016.
The cost of business funding is at a record low, but research has shown that expected returns and hurdle rates can be a more important driver of business or project funding decisions.
In terms of bank lending and funding, although growth in term deposits has been understandably weak in the prevailing low interest rate environment, the growth in other bank deposits has been hugely strong.
Combined with equity raisings this means that banks will have few problems meeting their funding requirements in 2016, strong deposit growth and capital raised helping to offset any moderate rising in funding costs.
Bank funding costs declined significantly in 2015 in any event, and sit way below the levels seen in 2012 or during the financial crisis.
Housing and outstanding credit
Although the pace of growth has slowed a notch, overall outstanding housing credit has continued to power higher to $1.55 trillion.
The composition of housing credit has shifted dramatically over the past eight months, with the investor share of outstanding credit having fallen by fully 3 per cent over that timeframe, a remarkably rapid shift in market dynamics exacerbated by loan reclassifications.
One other curious observation is how personal credit is actually now in decline.
One wonders whether this is related to the growth in the use of mortgage buffers and offset accounts, as it is certainly very unusual to see personal credit going backwards in Australia, even with mortgage repayments at such low levels for many existing homeowners.
Total credit increased by 1.5 per cent or $38 billion in the first quarter of 2016 to a grand total of $2.54 trillion.
Overall, the result was pretty much as expected on all fronts, with tightening measures restricting the annual growth in housing credit somewhat over the past six months to 7.2 per cent, and total credit growth a bit steadier at 6.4 per cent.