Australians are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Tuesday, February 03, 2009
Westpac bank passes on rate reduction to thier credit card customers
Australia's first bank was the first bank to pass on the Reserve Bank's 100 basis point interest rate cut to its mortgage customers.
But the real suprise was that Westpac wrer also the first bank to reduce the credit card interest by the full one per cent interest rate also when it announced it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in either home loan rates or credit card rates, or loans rates to small business, after the Reserve Bank's announcement at 2.30pm (AEDT).
But the real suprise was that Westpac wrer also the first bank to reduce the credit card interest by the full one per cent interest rate also when it announced it will also reduce its 55-day credit card rate by 100 basis points.
The nation's other big banks are yet to announce reductions in either home loan rates or credit card rates, or loans rates to small business, after the Reserve Bank's announcement at 2.30pm (AEDT).
Monday, February 02, 2009
Credit is off the boil in credit cards to business investment
AUstralian consumers and businesses are reducing their debts for the first time since the last recession, but questions are being raised about whether it is voluntary or enforced by lenders imposing stricter conditions.
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Figures collected by the Reserve Bank show the amount of credit outstanding to businesses and consumers fell 0.3per cent in December to just over $1.9trillion - the first monthly fall since 1992 - slowing what was expected to be a steady rise to $2trillion. Outstanding debt has roughly doubled in the past six years.
Corporations are leading the retreat, with demand for finance for new projects drying up and lenders become more cautious about who they lend to. Outstanding loans to business shrank 1.1 per cent in December, reducing the annual growth rate to 8 per cent, down from 24per cent the year before. The Reserve Bank said some of the decrease "reflected a fall in foreign currency-denominated lending".
Other figures released yesterday by the banking watchdog, the Australian Prudential Regulation Authority, and analysed by CommSec showed banks with foreign parent companies such as HSBC, Barclays and ING reduced loans and advances to Australian firms and households in December. All of the big Australian banks, excluding NAB, increased theirs.
The chief economist at Morgan Stanley, Gerard Minack, said the figures showed the credit crunch was beginning to be felt domestically. "More to the point, it will likely get significantly worse. Reduced credit flows is part of the reason I expect a severe recession in Australia.
In particular, tight credit points to a major fall in business investment over the next 18 months."
The credit figures are another sign of a slowing economy, which is expected to convince the Reserve to opt for a 1percentage point interest rate cut at its first meeting of the year next Tuesday.
Meanwhile, housing debt - which accounts for nearly half of all outstanding debt, or nearly $1trillion - continued to grow, albeit at a slower pace than a year ago. The annual growth rate of 7.6per cent was the slowest recorded in more than 25 years.
It shows that while lower interest rates and the first-home-buyers' grant boost may be supporting demand, existing borrowers are seeking to repay debts at a faster rate.
A Commonwealth Bank economist said it was a bad sign for house prices. "This much lower volume of funds trickling into the housing market means that sales volumes will remain anaemic."
Sunday, February 01, 2009
Credit Card transaction fall as buyers tighten their belts
Australians are turning their backs on credit, gripped by the fear of losing their job as the economic outlook turns increasingly grim.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.
More economists now believe a recession is unavoidable, if the country hasn't already entered one for the first time since the early 1990s.
Technically, a recession is defined as two consecutive quarters of negative economic growth. Federal Treasurer Wayne Swan won't be drawn on whether Australia will suffer that fate. "I don't speculate about the outcome of the figures," Mr Swan said on Friday. "It's a global recession and we're not immune from the fallout ... It's got much, much worse than anybody could ever have imagined."
The world's largest bank, JP Morgan, has further downgraded its Australian growth forecast, and expects the economy to contract by 0.5 per cent in 2009, a marked change from its previous estimate for a modest 0.2 per cent expansion. "Deteriorating conditions offshore and the worsening credit crunch point to a deeper Australian recession than previously forecast," JP Morgan's chief economist in Australia, Stephen Walters, said. "Increased anxiety about job security will be a heavy burden for consumers in 2009."
New data released on Friday shows that demand for credit recorded its first monthly fall since the 1991-92 recession. Total credit fell 0.3 per cent in December, while the annual rate of 6.7 per cent was the slowest pace since 1994.
Economists had expected a 0.5 per cent increase in the month. "There should now be nothing in the way of the RBA (Reserve Bank of Australia) delivering a large interest rate cut next Tuesday and signalling a desire to do more of the same at future meetings," TD Securities senior strategist Joshua Williamson said.
Financial markets are pricing in the risk of the RBA cutting its official cash rate by a further 100 basis points when its board meets on Tuesday, it's first meeting this year. This would take the cash rate to 3.25 per cent, a 45-year low. The markets are fully pricing a 2.0 per cent cash rate by mid-year. A breakdown of the RBA's credit data was even more dire.
Personal credit - outside of home loans - sunk a further 1.1 per cent in December and now stands 5.2 per cent lower than a year earlier. This is despite the central bank's 300 basis points worth of easing in the last four months of 2008. Total housing credit grew by a mere 0.4 per cent to an annual rate of 7.6 per cent. "This was despite the increase in affordability from lower official interest rates and the increase in the First Home Owners Grant in the month," Mr Williamson said. The government doubled the grant to $14,000 until June this year for existing home purchases, and to $21,000 for newly built homes, as part of last year's $10.4 billion economic stimulus package.
Worse still, business credit also fell for the first time in almost five years, down 1.1 per cent in December to an annual rate of 8.0 per cent. "The fall in business credit does suggest that the impending slowdown in business investment is occurring earlier than we thought," ANZ senior economist Katie Dean said.
Business investment has been a major plank for the economy in recent years, particularly in the resources sector as profits from China's demand were sunk back into companies' infrastructure.
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