Slow credit growth is the new norm

Since the scare of the GFC a few years ago Australians are borrowing less, for homes, investments and for general purchases.

In general this is a good thing and I’ll explain why in a moment and this may be the new norm according to Damian Smith, CEO of financial comparison website RateCity.

“We really believe there’s been a genuine shift in the way Australian consumers and businesses think about credit, and lenders will have to be prepared for a decade of slower credit growth” said Smith 

It seems that some of Australia’s top-end credit card providers are struggling with the slow credit growth, which could lead to more competitive offers for platinum and rewards credit cards according to Australia’s best

David Jones has announced looming large revenue and profit declines from their co-branded American Express card this week. This is part of a broader trend of much slower credit growth in in Australia.

Year-on-year credit card growth for both total balances and balances accruing interest has hit a three-year low of about 2.5 percent (based on data from the Reserve Bank, analysed by RateCity). This is far from the credit card growth of 20 percent for balances accruing interest in 2006 (see table below).

Slow credit growth is the new norm

Source:, RBA

Damian Smith, RateCity’s CEO, said borrowing less money is “the new normal” and lenders need to readjust their profit expectations.

“David Jones’ credit card struggles are based on the fact their co-branded deal with American Express assumes annual spending growth of 7.5 percent. In fact, card spending is growing at less than one-third of this rate, and has dropped from a high of 15 percent per annum in 2006.

“Credit card growth has been on the way down for the past six years and lenders need to get used to the fact that Australians aren’t taking on as much credit as they once were.

“This isn’t just true of credit cards – borrowing for home loans has slowed dramatically with 2 percent growth in the number of home loans financed in 2011 compared to 2010 (based on Australian Bureau of Statistics data). Conversely, Australians are saving at unprecedented rates with a record $535.6 billion of cash deposits sitting in banks and 10 percent growth in the year to January 2012 (Australian Prudential Regulation Authority data).

“We really believe there’s been a genuine shift in the way Australian consumers and businesses think about credit, and lenders will have to be prepared for a decade of slower credit growth.”

My thoughts.

Since the GFC we became a nation of savers. Prior tot his it was just the opposite. It got to the point where Australians were spending more than they were earning, with some using their homes as an ATM and others just using an ATM when the money ran out before the month did.

You just have to look at Europe to see what happens when people spend more than they earn – now the people of Greece and Spain are living in austerity making up for the excesses of the past.

We were heading in the same direction but now, on average, we are saving 10% of what we’re earning. We’re paying off our mortgages, paying down our credit card debt and not taking on new loan commitments.

In general our family budgets are in good shape as are the budgets of many businesses and while this may be hurting retailers, it means we’ll be able to handle any speed bumps the economy puts in our way.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit

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