Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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Friday, 27 February 2015

Private sector credit expands +6.2 percent

Financial Aggregates improve

The Reserve Bank released its Financial Aggregates for the month of January 2015 which beat expectations by showing a 6.2 percent expansion in credit.

This is the fastest rate of credit growth seen since January 2009.

Let's step through it in 3 parts and 60 seconds.

Part 1 - Total credit up 6.2 percent

Business credit is now up by 5.5 percent over the past year, and housing credit by 7.1 percent.

Personal credit increased by only 0.8 percent.



Part 2 - Business credit improves

Business credit surprised by increasing by 0.8 percent following on from a weaker 0.5 percent reading in December.



The annual rate of credit growth at 5.5 percent is now the strongest result since February 2009 when the financial crisis saw recession-like conditions hitting Australian business.


There has been a lot of largely unsubstantiated talk about property investors "crowding out" lending to business, but I think you need to dig a bit deeper than that before making such a conclusion (certainly it wasn't the view of the business lending folk I have spoken to).

What about the following forms of business financing, for example?

Firstly, bond issuance by mining companies has declined substantially since 2008, of course, but corporate bond issuance in the domestic market is alive and kicking with $2.5 billion of  corporate bonds issued over the last quarter alone.

Hybrid issuance over 2014 was very strong indeed - in fact, a record $14.5 billion was raised in the last calendar year, mainly by the largest banks.

Between November and February six financial entities raised a total of $2.6  billion of hybrid debt, which included the first "RMB-denominated" Tier 2 hybrid debt issuance by Aussie banks.

There has also across recent months been significant growth in foreign currency denominated business credit, which has effectively been boosted by valuation effects associated with the depreciation of the Aussie dollar.

So to say that property investors have "crowded out" business lending based upon such a narrow focus is misleading.

Meanwhile IPO capital raisings are tracking at their highest level in 18 years with consumer and healthcare listings leading the way cf. the $5.7 billion Medibank privatisation, which was the largest IPO in Aussie equity markets since the initial Telstra offering way back in 1997.

Naturally, my chart below does show that secondary capital raisings are tracking at a lower level than was the case through the financial crisis when there was a great flood of recapitalisation, but look at the aggregate for initial capital raisings go!



As for small businesses?

Well, I can't speak for other small business owners, but I do know that Hades would freeze over before I took a small business loan ahead of a line of credit secured against my house.

"Crowding out" is hokum and should be banned as a phrase - as and when confidence returns, businesses will find the ways and means with which to expand.

Part 3 - Housing credit

Low interest rates have unsurprisingly continued to support housing credit which will of course lead to 2015 being a positive year for property markets.

In January housing credit expanded at a faster pace than owner-occupier credit once again.



Investor credit is now accelerating at a rate of more than 10 percent per annum, and even on a smoothed rolling annual basis the rate of credit growth is now approaching double digit pace.



This will raise questions as to what role APRA is going to take as interest rates look set to fall even further.

Investors now hold a record 34.3 percent of outstanding housing credit.

This is a trend which will continue, of course, not least because in Australia we have a tax system which encourages property investors to use interest only loans and not repay the capital.


Further property market gains ahead for 2015 then but mainly focussed on Sydney and - at last I now feel - inner ring Brisbane.

Done! Was that 60 seconds?

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