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Business credit growth slips deeper into negative territory

The Reserve Bank has reported a second monthly contraction in business credit growth, with “very high” uncertainty off the back of the COVID crisis dampening demand for finance.

According to the latest Financial Aggregates data from the Reserve Bank of Australia (RBA), total credit growth contracted by 0.2 per cent in June following a 0.1 per cent fall in May.

The subdued result was driven by a sharp contraction in business credit growth, which fell 0.8 per cent in June following a 0.6 per cent decline in May.

This marks the third consecutive month of weak business lending activity following a surge in demand at the onset of the COVID-19 crisis, which spurred record-high growth of 3.1 per cent in March.

ANZ Research attributed the sudden reversal in business lending conditions to high levels of uncertainty in the marketplace, which it said would continue to drag down business lending volumes over the coming months.  

“With uncertainty very high given the current virus outbreak, we struggle to see many new business loans occurring and, as a result, we expect further falls in business credit,” the research group observed.

Meanwhile, housing credit growth was stable at 0.2 per cent, but remains subdued in annual terms at 3.1 per cent, down from 3.5 per cent in the previous corresponding period.  

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However, ANZ Research said it expects housing credit growth to slip into negative territory over the coming months.

“With our expectation for unemployment to rise even further and wage growth to remain subdued, we anticipate housing credit growth will continue to slow and then turn negative over the next 12 months,” ANZ Research added.

The value of new home loan approvals has already begun to contract, with the Australian Bureau of Statistics’ latest Lending Indicators data reporting a 11.6 per cent (seasonally adjusted terms) slide to $16.4 billion in May – the largest fall in the history of the series.

This followed a 4.8 per cent decline in April, which was the sharpest fall since May 2015.

[Related: Business lender acquires invoice financier]

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