Business credit growth flat in Q3
Veda Quarterly Business Credit Demand Index: September 2013
Business credit growth flat in Q3
- Overall business credit growth contracts to -0.7% year on-year, falls from 5.5% in June quarter
- Reduced demand for business credit seen in mining and non-mining states
- Changes to Fringe Benefit Tax may have reduced demand for asset finance
- Appetite for business loans eases while trade credit enquiries decrease
Sydney, 30 October, 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 third calendar quarter of 2013. The index, which measures the change in credit demand for the September quarter compared to the same period in 2012, showed that overall business credit demand decreased to -0.7% over the past year, a sharp fall from 5.5% in the June quarter.
The decrease in overall business credit enquiries reflects decreases over the past year in asset finance (-5.9%) and trade credit (-0.6%), partly offset by a rise in business loans (+3.1%).
The deterioration in business credit enquiries has been driven by softening demand in both mining and non-mining states. Growth in overall business credit applications across the non-mining states eased from 6% in the June quarter to 0.1% in the September quarter, while growth in the mining states (WA, QLD and NT) eased from 4.6% in June to 2.1% in September.
“The September quarter was the first contraction in business credit demand since the end of the GFC so it is clear that weak economic conditions and political uncertainty were affecting business confidence. However, low interest rates and a new government appear to be giving businesses greater confidence with credit demand for the month of October looking strong,” said Moses Samaha, general manager of commercial credit risk at Veda.
Overall business credit enquiries eased in the September quarter in all states with the NT (+10%), VIC (+1.5%) and SA (+0.5%) recording increases, while enquiries fell in WA (-4.7%), TAS (-3.8%), ACT (-2.7%), QLD (-1.1%) and NSW (-1.2%).
While overall growth in business loan enquiries was positive, there was a slowing in the pace of growth in all states during the September quarter. The strongest growth was seen in VIC (+6.9%), followed by NSW (+2.9%), SA (+2.0%), QLD (+1.9%) and TAS (+1.2%), while demand for business loans fell in WA (-1.3%), the NT (-1.1%) and ACT (-3.3%).
Trade credit enquiries were weak in the September quarter with decreases recorded in a number of states, primarily driven by a decrease in appetite for trade finance. Trade credit growth was strongest in the NT (+23.2%) with VIC also recording an increase (+2.2%) but decreases were recorded in all other states, with ACT (-4.6%) recording the largest fall, followed by WA (-2.9%), TAS (-2.6%), NSW (-2.5%), QLD (-0.7%) and SA (-0.2%).
The pace of growth in asset finance enquiries fell very sharply across all states in the September quarter. An overall contraction of -5.9% was driven by weakness in mining states with WA (-12.6%) and Queensland (-5.4%) recording decreases. A similar situation was apparent in the non-mining states, with TAS recording a substantial fall (-14%), followed by VIC (-6.6%), NSW (-4.5%) and SA (-0.7%). The NT (+6.7%) and ACT (+1.4%) were the only states recording positive growth in asset finance enquiries.
“The contraction in asset finance enquiries is surprising as it reverses the trend of two consecutive quarters of growth. We saw a large drop in the number of businesses seeking to hire or lease equipment in the September quarter which may have been a result of the changes to Fringe Benefits Tax implemented by the Labor government at the beginning of the quarter,” said Samaha.
Veda’s 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 building construction.
“Given the historical relationship between the Veda Business Credit Demand Index and growth in real GDP, Veda’s latest business credit data would be consistent with the annual growth rate of real GDP running at around 2.5 % per annum, which is similar to the rate of 2.6% recorded in the year to the June quarter of 2013.”