Australian private credit up on business lift and stable total housing credit

Credit posted a stronger than expected 0.8% gain in September following back-to-back gains of 0.6% in July and August. The average pace over the first half of 2015 was just 0.5% a month. The uptick in Q3 has been centred on a strong rise in business credit.

Annual credit growth has now lifted to 6.7%, from 5.4% a year ago and 3.3% in September 2013. Both businesses and households have responded to interest rates declining to fresh historic lows.

There continue to be significant issues around shifts in the composition of housing credit. The RBA noted, "Following the introduction of an interest rate differential between loans to investors and owner-occupiers a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $0.4, $7.7 and $5.2 billion in July, August and September". 

These changes have been incorporated into estimates of the level of owner-occupier and investor credit but growth rates have been adjusted to remove the effect of loan purpose changes. In other words, the reported growth rates for owner-occupier and investor credit can be considered 'underlying' measures ex switching effects."

Business credit posted a robust 1.2% rise, the strongest monthly rise since the GFC and following on from solid gains in August (+0.5%) and July (+0.7%). The 3mth annualised growth rate hit 10.3%, the first reading above 10% since November 2008. 

The surge is broadly consistent with improved business confidence, easier credit conditions and a pick up in commercial finance approvals, although the latter suggests the gain may be a temporary burst. 

Commercial finance approval (i.e. new lending to businesses) grew strongly over the first half of the year but has come off notably since then. Housing credit increased by 0.6% in September, matching the average pace over the previous six months. Annual growth is holding at 7.5%, vs 6.6% in September 2014.

The selective tightening of lending conditions for housing investors is driving a clear shift with investor credit ex 'switching' rising just 0.1% a month since June - including switching, the total level of investor credit has fallen 1.1% since July. 

Some of this is generating 'positive spillovers' for owner-occupier credit, which has posted gains ex 'switching' of 0.7% in September and 0.6% in August. Including 'switching' owner occupier credit is up 2.9% since July.

"With the Westpac-MI Consumer Sentiment survey continuing to show weak reads on 'time to buy a dwelling' and banks raising variable mortgage rates by an average of 17bps in Oct a broader slowing in housing credit growth looks likely in coming months", says Westpac.