Businesses stall credit activity in lead up to interest rate cuts (BCDI April to June 2012)
Veda’s Business Credit Demand Index: April to June 2012
Sydney, Australia, 31 July 2012: The results of Veda’s business credit demand index for the second quarter of 2012 show that overall growth in business credit applications has eased to 4.5% over the year to the June quarter. Growth in April, May and June was 1.9%, 6.0% and 5.4% respectively. Veda is Asia Pacific’s leading provider of consumer and commercial data intelligence and insights.
The growth in overall business credit applications reflects growth over the past year in business loans (+5.1%), trade credit (+2.8%) and asset finance (6.0%). Of all the states, WA (+8.7%) continues to lead the nation in terms of growth in business credit, followed by NSW (+5.4%) and Queensland (+5.3%) with Victoria showing signs of weakness (+1.8%).
“In the lead up to the RBA interest rate cuts and Federal budget announcements that occurred around the same time, it felt like businesses “stalled” credit activity in anticipation of any major relief to be announced.,” States Moses Samaha, general manager- Commercial Credit & Supplier Risk for Veda.
“A recent study we completed showed that business credit demand Index has historically proven to be a good indicator of how the overall economy is travelling, with movements in the index being highly correlated with growth in real GDP, investment in machinery and equipment, and building and construction. The latest data suggests a softening in the pace of real GDP growth after a very strong March quarter,” continues Samaha, “This could mean that we will see a slow-down in GDP growth in coming quarters”.
Business loan applications eased across all states in June with WA (+11.5%) showing the strongest growth. More surprising is the current strength of business loan applications in NSW (+7.9%) and SA (+7.1%), which are followed by Queensland (+5.0%). Victoria (+0.2%) has not shown any growth in business loan applications over the past year, and is the weakest result of all states.
Asset finance enquiries have picked up over the past year. The growth in asset finance enquiries over the year to June (+6.0%) was the highest for over two years. Asset finance has been in a slump since the GFC and despite the latest rise, the level of asset finance enquiries remains well below its pre-GFC peak. By state, Queensland (+10.9%) and WA (+9.3%) show the strongest growth, while the non-mining states of NSW (+7.0%) Victoria (+2.4%), SA (-0.4%) and Tasmania (-14.9%) are weaker.
“Asset finance has been in the doldrums since the global financial crisis, and this latest result represents the strongest pace of growth in asset finance over two years. Whilst the recent increase is encouraging, the level of asset finance enquiries still remains around 20% below pre-GFC levels,” said Samaha.
Annual growth in trade credit also eased in June- growth in trade credit enquiries have generally been less cyclical than business loans and asset finance over the past few years, but annual growth for trade credit enquiries also eased in June to 2.8%.
Industry - Businesses in the construction (18.8%), manufacturing (13.4%) and retail trade (11.2%) industries account for the highest share of all commercial credit enquiries in the June quarter.
RBA cuts - despite the rate cuts, uncertainty about the European sovereign debt crisis and concerns about slowing economic growth in China appear to still be weighing on the confidence of Australian businesses to borrow and invest. However, business credit applications have generally been on an upward trend since mid-2010, and it’s likely that the full impact of the RBA’s most recent rate cuts on business credit are yet to be seen.