Business credit growth hits 30-year high

The Reserve Bank of Australia (RBA) has released its latest financial aggregates data, reporting a 1.1 per cent rise in total credit growth in March – the strongest monthly credit growth since 2007.

This was driven by a surge in business credit growth, up 2.9 per cent – the sharpest monthly growth in 30 years.

In annual terms, business credit grew 6.3 per cent in the 12 months to 31 March 2020, up from 4.9 per cent in the previous corresponding period.

Reflecting on the data, ANZ Research attributed the spike to cash flow pressures facing Australian businesses amid the economic fallout from the COVID-19 pandemic.

“We think the reasons for the surge reflect a mix between precautionary shoring up of balance sheets by businesses and those that needed cash flow as their revenues started to dry up as the economy went into partial shutdown,” the group noted.

“In particular, sectors like tourism and hospitality are likely to have experienced significant declines in revenue as early as February.”

ANZ Research added that the trend is likely to continue over the next few months before demand tapers off in the medium term.

“Given the likely continued hit to a large number of company’s revenues, business credit could continue to grow at least for another month or two,” the research group stated.

“The need to fund JobKeeper payments upfront will also be a factor for the April figures.

“Overall, our view is that this will not last and, over the coming six months, business credit growth will not only slow but also go negative.”

However, the rise in business lending volumes was offset by subdued housing credit growth and a contraction in personal lending.  

Housing credit was stable month-on-month at 0.3 per cent, but was down in annual terms, from 3.9 per cent growth to 3.1 per cent.

Meanwhile, personal loan growth remained in negative territory, falling 1.4 per cent month-on-month and 6.5 per cent in annual terms.

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