Business credit growth in Australia banks rose to ~5% in June

It’s the highest rate in two years.

The month of June saw some encouraging signs with a strengthening in credit growth, with housing and business credit both seeing a pickup in growth trends. Business credit growth improved to ~5% (3m ann.), which is the highest rate in two years.

According to a research note from Nomura, housing credit remained resilient at ~7% (3m. ann), meanwhile.

The report also noted that based on APRA data, the majors are growing above system in housing (at~8-9% 3m ann). In this regard current trends continue to favour retail banks although a gradual recovery in business credit should eventually swing the pendulum in the business banks' favour.

On the funding side, the banks’ organic funding gap remained broadly consistent (~A$19bn over the past three months).

Here’s more from Nomura:

This was helped by an improvement in corporate deposit growth, now at ~8.8% (3m ann.), but offset by the weakness in household deposits, with the majors experiencing an outflow in June.

This potentially raises deposit quality concerns as household deposits are generally viewed as better quality deposits.

While this is not a significant issue at present, if these trends were to be sustained, funding could become a more important issue and potentially a constraining factor going forward.

In housing loans, the majors’ growth rates appear to have converged. NAB remains the leader, with a 9.1% growth rate (3m ann.), but its peers are not far behind, growing their mortgage books at 8-9% (3m ann).

The regional banks, particularly BOQ and SUN, continue to grow below system. SUN has seen the weakest trends over the quarter, with 2.8% (3m ann) growth in mortgages.

In business lending, NAB’s gain in market share the previous month appeared to be short-lived (albeit we note that monthly trends tend to be volatile).

On a 3-month basis, NAB’s business lending book grew by ~9% (ann), which is in line with the peer average.

While we expect ultimately to see a business-led recovery in credit growth, in the short term retail-overweight banks remain better placed to deliver stronger balance sheet growth.