Daily Commentary BY THE CURVE TEAM –

Credit Remains Flat as Deposits Soar

1st of October, 2020

RBA Credit Aggregates for August saw a continuation of the last 3 months.

After three consecutive months of outstanding credit falling, August improved to be only slightly negative. Business lending again was again down 0.4% for the month, owner occupied housing rose again to be up 0.4% and investor housing credit was flat.

As credit stalls, broad money continues to rise. Broad money has increased 11.5% on last year, which bucks the trend of the 90s recession and the GFC where broad money fell sharply.

Household deposits fell by $9.1 billion for the month, leaving them 8.4% higher than February. $34 billion worth of super withdrawals over the year and government wage subsidies have been large contributors to the growth.

The RBA and the government will be hoping that the large deposit base will support consumption and by extension inflation as the economic recovery begins.

Building approvals were down 1.6% for the month, with the fall entirely due to apartment approvals falling 11%. Detached housing approvals were up 4.8%.

Population growth is often the impetus for apartment growth, so the soft numbers are a sign of the impact of closed borders. Construction is also a key employer in Australia’s economy, so less approvals translates to less employment opportunities.

APRA also released an update for loan deferrals for August. Loans on deferral continues to trickle down, so 8.5% of total loans outstanding still have some payment deferral. Small to medium businesses still have over 16% of loans deferred.

$14 billion worth of loans were extended or deferred in August, but this was outpaced by the $24 billion that removed their deferral status. This suggests the economy is still struggling from the effects of Covid-19.

Josh Stewart

Client Relationship Manager