Mining states boom while SMEs feel pain (BCDI January to March 2012)
Veda’s Quarterly Business Credit Demand Index: January to March 2012
- Australia’s two-speed economy in full swing - mining states driving strong demand for business credit; NSW, VIC, SA, TAS continue to lag
- SME’s appear to be relying on more credit options to smooth out cash-flow
- Business lending the new battleground for banks as they see margins erode in the mortgage market
Sydney, Australia, 1 May 2012: The results of Veda’s Commercial Credit Demand Index for the first quarter of 2012 show that while overall business credit inquiries increased in the first quarter, with +8.8 per cent growth compared to the same period last year, most of this demand was driven by the mining states – Northern territory (+18.6 per cent), W.A. (+11.6 per cent) and Queensland (+10.2 per cent) – highlighting that the two-speed economy is in full swing in Australia. Veda is Australasia’s leading provider of commercial and consumer data intelligence and insights.
SMEs across Australia appear to be hurting, with credit enquiries traditionally associated with freeing-up cash-flow on the increase. Credit card enquiries are up +32.5 per cent, overdrafts +76.8 per cent, and trade finance +68.5 per cent compared to the same period last year. SMEs with 5-50 employees represent about 12% of the population, yet typically drive around 49 per cent of credit enquiries and 55% of EXADs.
“It’s no surprise that business credit applications have been stronger in the resource-sector heavy states”, said Moses Samaha, Head of Commercial Risk at Veda. “Overall there has been an increase in all states, which is a positive indicator but highlights that the two-speed economy continues to accelerate the disparity between these state economies. It’s becoming apparent that there is also a deepening of the enterprise versus SME business divide across Australia, with SMEs relying on more credit options to smooth out cash-flow.”
Overall the index showed that business credit applications were picking up, showing growth of +8.8 per cent over the year to the March quarter. This was a notable turnaround in business credit applications from 18 months ago, when business credit applications were contracting.
The lift in overall business credit applications has been driven primarily by stronger growth over the past year in business loans (+16.2 per cent) and trade credit (+9.9 per cent), while asset finance (-0.5 per cent) remained subdued.
Overall business credit applications declined in the March quarter compared to the December quarter, with declines in each of business loans, trade credit and asset finance. However, the March quarter typically sees a decline in applications for business credit due to seasonal effects. Importantly, business credit applications have picked up compared to a year ago.
Business Loans: The strength in business loan applications over the past year has been broad based across lending proposals (+14.3 per cent), mortgages (+9.7 per cent), credit cards (+32.5 per cent), and overdrafts (+76.8 per cent). Lending proposals is the largest sub-category, accounting for around four in ten business loan applications - it has been the strongest driver in overall business loan applications over the past year. By state, the mining states lead the growth in business loan applications, with the NT (+26.6 per cent), QLD (+21.0 per cent), and WA (+17.6 per cent) all showing very strong growth but VIC (+14.5 per cent) and NSW (+16.0 per cent) not far behind.
“As consumer mortgage market volume and profitability erodes due to growth in consumer refinancing, it’s possible that banks are seeing business lending as the new battleground for profitable business expansion and these results clearly indicate a trend in this area,” said Samaha.
Trade Credit: The rise in trade credit has largely been driven by rises in 30 day accounts and trade finance. Accounting for around three quarters of trade credit, 30 day accounts drove the rise in overall trade credit, showing growth of +5.9 per cent over the past year while trade finance showed growth of +68.5 per cent. In contrast, applications for 7 day accounts contracted over the past year.
Asset Finance: This area remains subdued. The level of enquiries for asset finance slumped during the GFC and remains at a similar level to the end of 2008. Latest data shows significant weakness in enquiries for commercial rental, while there has been modest growth in enquiries for hire purchase and leasing, and slightly stronger growth for personal loans. By state, enquiries for asset finance have risen over the past year in the NT (+4.4 per cent), QLD (+4.4 per cent), and WA (+3.2 per cent) but have fallen in the non-mining states - VIC (-5.4 per cent), SA (-2.4 per cent), TAS (-3.2 per cent) and NSW (-0.6 per cent).
By Industry: Businesses in the construction (18.9 per cent), manufacturing (14.1 per cent), and retail trade (11.8 per cent) industries accounted for the highest share of all commercial enquiries in the March quarter.
“The expected RBA prime interest rate cut next month should ease the economic pressure on the non-mining states and sectors like retail, tourism, housing construction and manufacturing, although it’s clear more needs to be done to stimulate these areas further.” said Samaha.
Default Rates: These rose in the March quarter for manufacturing and wholesale trade. In contrast, there was a decline in the default rate for accommodation and food services. By state, default rates increased for NSW, which accounted for 38 per cent of all defaults in the March quarter. Default rates declined in VIC and QLD, which accounted for 26 per cent and 20 per cent of all defaults respectively. SMEs (5-50 employees) also drove the lion-share of defaults.