Bank Lending Results & Interest Rates

[Michael Cornips]

As usual, the end of the month sees APRA releasing the bank balance sheets for the previous month (June 2011).

Overall, the picture of lending in Australia is one of a negative trend. The graph below is annual year on year growth rates of each of the lending sectors. Owner Occupied and Investment home lending growth is at its lowest for 20 years - and the trend is pointing down. Personal lending, having dipped into negative growth during the GFC, is touching the zero growth line again. Business lending growth is just outright negative (minus 2.7% year on year) and has been negative since June 2009.

Below is the breakdown of the latest annual growth rates of each of the major banks in each of the sectors. Macquarie shows the withdrawal of the bank from home loan lending. You can see that Macquarie has a large growth rate in deposits due to the Government guarantee. The Government deposit guarantee expires in October and it will be interesting to see what it is replaced with and therefore the potential impact on Macquarie to continue to fund its book via deposits.

The figures illustrate the success NAB has had in attracting new home lending business with its advertising campaign and more aggressive lending rates.

Overall, given the negative trends in most sectors of bank lending, and given the diabolical performance of the retail stocks, you would be hard pressed to believe that the RBA would lift rates next Tuesday. Opinion on the direction of interest rates is the most polarized it has been for a long time. ANZ's economist believes interest rates will go up next Tuesday, and Westpac believes the next move will be down. HSBC believes nothing will happen this year, but probably a rate rise next year. I believe the CPI figure was a one-off, and after removing volatile items, the trend remains within an acceptable range.

The only result coming out of the US is that spending will be cut, and most of Europe and the UK is on an austerity drive. Less government spending will simply mean less income to the non-government sector. This not the environment for interest rate increases.

Michael Cornips

 

[Aussiejeff]

As usual, the end of the month sees APRA releasing the bank balance sheets for the previous month (June 2011).

Overall, the picture of lending in Australia is one of a negative trend. The graph below is annual year on year growth rates of each of the lending sectors. Owner Occupied and Investment home lending growth is at its lowest for 20 years - and the trend is pointing down. Personal lending, having dipped into negative growth during the GFC, is touching the zero growth line again. Business lending growth is just outright negative (minus 2.7% year on year) and has been negative since June 2009.

Below is the breakdown of the latest annual growth rates of each of the major banks in each of the sectors. Macquarie shows the withdrawal of the bank from home loan lending. You can see that Macquarie has a large growth rate in deposits due to the Government guarantee. The Government deposit guarantee expires in October and it will be interesting to see what it is replaced with and therefore the potential impact on Macquarie to continue to fund its book via deposits.

The figures illustrate the success NAB has had in attracting new home lending business with its advertising campaign and more aggressive lending rates.

Overall, given the negative trends in most sectors of bank lending, and given the diabolical performance of the retail stocks, you would be hard pressed to believe that the RBA would lift rates next Tuesday. Opinion on the direction of interest rates is the most polarized it has been for a long time. ANZ's economist believes interest rates will go up next Tuesday, and Westpac believes the next move will be down. HSBC believes nothing will happen this year, but probably a rate rise next year. I believe the CPI figure was a one-off, and after removing volatile items, the trend remains within an acceptable range.

The only result coming out of the US is that spending will be cut, and most of Europe and the UK is on an austerity drive. Less government spending will simply mean less income to the non-government sector. This not the environment for interest rate increases.

Michael Cornips

Thanks Michael for the informative graph and commentary.

Yes, it is hard to see any upside here, with governments world-wide on severe "austerity drives".

This essentially is setting up a negative economic feedback loop, ie:

Massive Public Spending Cuts = More Massive Drops In Consumer Spending = More Declines In Business Profitability & Confidence = Even Less Inclination For Banks To Lend Money To Struggling Businesses

I think the most realisitic forecast I can come up with after looking at my crystal balls is :fan

Cheers,

aj

 

[joea]

In the Australian.
Focus::: As new crisis dawns, Stevens has some big calls to make.

An interesting extract......'Inflation is rising and expected to continue to pick up,the mining boom continues, the non-mining parts of the economy have weakened and as markets have shown in the past day or so, tail risks of a large negative financial event are acute."

Well builders in our town are looking for jobs in WA fly in fly out.
The building industry is in crisis, and we have Labor "off their rocker".

Christopherer Joye says the "RBA have lost the plot" because they should raise the rate.

Are some of these people living in a "cocoon" lined with money.
Hey guys, we are just about down and out?

Maybe the so called "Convoy to Canberra" may make something happen.
It is being advertised on the radio up North.
I think they should invade Canberra, turn off their engines and set up camping gear for a couple of days. Will that wake anybody up???.
joea

 

[joea]

hi.
Interest futures are now pricing in a 1% cut in interest rates by Christmas.
joea.

 

[joea]

hi.
Interest futures are now pricing in a 1% cut in interest rates by Christmas.
joea.

My time line in the above is a bit premature.
However we have finally seen the RBA look out of their ivory tower
Obviously they have come to understand its not all caviar and wine in the real world.

With only a 0.25% reduction, we would have to see another drop in December to help the Australian economy.
joea

 

[tothemax6]

With only a 0.25% reduction, we would have to see another drop in December to help the Australian economy.

The RBA has rules. They are supposed to hold inflation below 3%. They acknowledge an official inflation rate of 3.5%, and they have lowered the cash rate.

Perhaps the madness is spreading to Australia too.