Business credit demand slows in Q1 across most market sectors and all states
Veda Quarterly Business Credit Demand Index: March 2013
Veda’s Quarterly Business Credit Demand Index: January to March 2013
- Business credit growth slows for second consecutive quarter, first time this has occurred since June 2010
- Slowing credit demand highlights risk of GDP growth being less than 3% in 2013
- Overall demand for business credit eases across all states, increasing just 2.2% year on year
- Trade credit enquiries contract -2.5% year on year
Sydney, Australia, 1 May 2013: Veda, Asia-Pacific's leading provider of consumer and commercial data intelligence and insights today revealed the results of its business credit demand index for the first calendar quarter of 2013. The index, which measures the change in credit demand for the March quarter compared to the same period in 2012, showed that overall business credit demand growth eased to 2.2% over the past year.
Equifax's 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 construction. Given this historical relationship, Equifax's latest business credit data appears to correlate with an expected annual GDP growth rate of about, or just under, 3%.
The report found that the growth rate of business credit applications has been easing since reaching a relatively strong rate of 6% in the September quarter of 2012. This easing in the quarterly growth rate has been seen across business loans (+5.4%) and asset finance (+4.6%), while trade credit enquiries have fallen (-2.5%).
"The weakening of business credit growth is a concern since lower interest rates do not appear to be giving many Australian businesses the confidence to take on additional credit. We are witnessing a continued slowdown in the pace of growth of business credit activity, a trend which may indicate that the medium term outlook for GDP growth does not look good," said Moses Samaha, General Manager of Commercial Credit Risk for Veda.
Growth in overall business credit applications eased in both mining and non-mining states. Western Australia (+5.1%) showed the strongest growth followed by QLD (+1.7%). The Northern Territory (+9.2%) also showed strong growth. Among the non-mining states, VIC (+4.4%) showed the strongest growth, followed by ACT (+5.2%) and SA (+1.2%) while enquiries in TAS were close to flat (+0.8%) and NSW (-0.4%) contracted.
Growth in business loan applications also eased year on year with an overall increase of 5.4% across all states. Western Australia (+10.5%) was the strongest state while VIC (+8.0%) was surprisingly strong growth despite broader weakness in its economy. Easing in the growth of loan proposals, credit card enquiries and overdraft enquiries was also evident in SA (+4.4%), NSW (+3.9%) and QLD (+1.5%). The territories also demonstrated growth led by the NT (+13.3%) and followed by ACT (+8.3%).
"Despite the slowing of business loan enquiries, it is encouraging to see the big banks upping their media presence around business banking and making pledges to the small business market in terms of the business they want to write. No doubt the impact of this is yet to be seen," Samaha said.
Overall trade credit applications contracted year on year, falling -2.5%. By state, the weakness in trade credit was most apparent in NSW (-6.7%), QLD (-3.3%), SA (-3.1%), and TAS (-2.0%). Victoria (+2.3%) and the NT (+1.4%) recorded an increase while appetite for trade credit was flat in WA (0.6%) and ACT (+0.3%).
"Extension of credit is a fundamental part of how SME's do business together, and this type of credit has historically defied seasonal trends and major impacts such as the GFC. Two quarters of contraction in trade credit is a worrying sign that suggests businesses are either not seeing sales come through the door, or choosing to not extend credit to one another," Samaha said.
A red flag for Australia's economy is the easing of business credit growth across both the mining and non-mining states. Growth in business credit applications across the mining states eased from 4.8% in the December quarter to 3.1% in the March quarter while growth across the non-mining states eased from 3.2% to 1.8% in the same period.
The pace of growth in asset finance applications picked up in the March quarter but this growth is still weaker than six months ago, and the level of enquiries remain well below the pre-GFC peak. The mining states of WA (+4.8%) QLD (+8.8%) and the NT (+19.9%) continue to show stronger growth than ACT (+8%), NSW (+3.3%), VIC (+2.5%) and SA (+3.4%), although the pace of growth in the mining states has eased over the past six months.