Tag: Credit Aggregates

The Debt Machine Is Alive And Well

As we approach the end of the year, we got some stats from the RBA on credit to the end of November. Whilst the debt is growing the value of the housing assets are falling, this is a nasty pincer movement!

Their credit aggregates reveals that in seasonally adjusted terms total credit rose by 0.34% or $9.9 billion dollars, to a new record of $2.9 trillion dollars.

Within that credit for owner occupied housing rose 0.38%, or $4.63 billion to a new record $1.21 trillion dollars, lending for property investment was flat, standing at $0.59 trillion dollars and lending for business rose 0.56%, or $5.32 billion to $0.95 trillion dollars, another record. The proportion of business lending to all lending rose to 32.8%, while the share of residential property lending for investment property fell to 32.9%, the lowest in years (but still too high in my book!). Credit growth is too fast.

The trend charts show that on a 12 month basis, investment lending has now only growth 1.1%, while owner occupied lending is still running at 6.8%, still faster than business lending. Personal credit continues to fall.

This indicates that despite all the hype about tight lending, loans are still being written, at a growth rate which is well above inflation and income. As a result the total debt burden is still rising. RBA please note.

We can see the consequences working out by looking at the latest Household Finance Ratios from the RBA, using ABS data

This shows that total household debt to income to September 2018 fell from 189 to 188.6, whilst the housing debt to income rose from 139.4 to 139.6 and the owner occupied ratio rose from 107.4 to 108.4. Now this ratio includes households and unincorporated businesses – small businesses essentially. So we see the continued consolidation of debt around housing, while other forms of debt, such as credit cards, diminished. In fact, the change quarter on quarter for owner occupied housing debt is close to 1%, so have no doubt, debt relative to income for housing is still rising.

The assets to income data in the same series fell, thanks to the fall in value of housing.

The ratio of household assets to income fell from 956.0 to 950.8, the ratio of housing assets to income fell from 517.3 to 508.4, down 1.7% in the quarter and  2.7% for the year to date, while the ratio of financial assets (stocks etc.) lifted from 410.3 to 414.5 (though will be lower now thanks to the recent market falls). In other words, whilst the debt is growing the value of the housing assets are falling – a double whammy.

The final dimension is interest payments to debt, both of which are higher (thanks to bigger loans and only small changes in mortgage rates).

The ratio of housing debt interest repayments to income rose from 7.4 to 7.5 per cent and interest payments on all debt rose from 9.0 to 9.1 percent.  This is confirming the growth trend since 2016, where the out of cycle interest repayments hit.

The point to note here is that the one third of households with mortgage debt are seeing a rise in the share of income going to support the interest repayments – at these extremely low, emergency interest rates. And that is the point, the averages mask the marginal borrower who remains under extreme pressure, which is why mortgage stress continues to rise. We will report on the December data in a week or so.

So the key take away as we move into 2019 is the debt machine is still working, more households are being encouraged to get deeper into debt, despite the clear evidence of massive over borrowing. A strategy applauded by the RBA, the Treasury and the Banks!

We really need a change in strategy because debt fueled household consumption and property speculation will be one of the nails in the economies coffin down the track. Interest rates will rise. The other is sporty corporate borrowing, but that is a story for another day!

Finally, seasons greetings to all our followers, and our best wishes for (a debt free) 2019!

The Credit Impulse Weakens Further In October

The RBA and APRA both released their statistics today to end of October. The data clearly shows the mortgage flows are easing, which is a key indicator of weaker home prices ahead. Remember it is the RATE of credit growth, or the credit impulse we need to watch. Essentially, for home prices to rise, the rate of credit growth needs to accelerate, and the reverse is also true as can be clearly seen.

The RBA credit aggregates   shows that overall credit rose by 0.4% last month, or 4.6% over the past year. Housing credit rose by 0.3% in October, or 5.1% over the past year. Business credit rose 4.7% over the past year and 0.6% in October. Personal credit fell 1.6% over the year, and broad money rose by 1.9%, compared with 6.8% last year – the credit impulse is easing!

Total housing lending rose by 0.28% to $1.78 trillion. Within that owner occupied lending rose 0.42% or $5 billion to $1.2 trillion while investment lending rose by just 0.1% to $593.6 billion.  Investment loans fell to 33% of all loans, down from 38.6% in 2015.

Business lending was 32.7% of all lending, lower than 2015.

The monthly flows continue to show significant noise…

… but the annualised figures show the fall in housing lending across the board.

Turning to the APRA banking stats, we can look at individual lender portfolios.  We see that Westpac and ANZ both reduced their investor loan portfolios between September and October, while NAB and CBA grew theirs.

Macquarie Bank is still growing its investor pools (well above the now obsolete APRA 10% speed limit).

ADI portfolios hardly moved overall with CBA still the largest owner occupied lending, and Westpac the largest investment lender.

We can still plot the annualised movements of investor loans, and we see a small number of lenders well above the 10% speed limit (which was removed a few months ago). Significantly many lenders are well below that rate.

At an aggregate level, lending by ADIs was up 0.3% in the month, with investor loans flat, and owner occupied loans at 0.46%.

The proportion of investor loans fell again in stock terms to 33.6%.

Total ADI lending rose to $1.66 trillion, up 0.3% of $5 billion. Owner occupied loans rose 0.46% to $1.1 trillion and investor loans rose 0.004% to $557.4 billion.

In fact some smaller banks, and non-banks are growing their portfolio faster than the majors, thus the rotation across the sectors continues.

We expect credit to continue to grow more slowly ahead, and this will lead home prices lower.

 

 

Credit Growth Eases According To The RBA

The latest Credit Aggregates from the RBA to September 2018 continues to show an easing of credit growth. Total credit, across all categories rose seasonally adjusted by $14.41 billion or 0.5%, to $2.8 trillion.

Within that owner occupied lending rose 0.5% or $5.5 billion to $1.19 trillion while investment lending rose 0.1% or $0.52 billion to $593 billion. Other personal lending was flat, and business lending rose 0.9% to $943 billion, up $8.4 billion.

Investor loans fell again to 33.1% of all housing lending, while business lending rose a little to 32.7% of all lending.

The monthly movements are still noisy…

… but the 12 month ended data shows how investor lending continues to slow, owner occupied lending growth is slowing, and overall lending for housing growth is slowing to 5.2%.

This is a problem for the banks in that to maintain profitability as assets grow, they need the rate of growth of housing loans to RISE not slow down. Even at these levels (with some growth) household debt will rise relative to loans, so again it highlights the fundamental problem we have in the system at the moment.

Lending in the less regulated Non bank sector still appears to be growing more strongly than ADI lending.

Investor Lending Slows, But…

The RBA Credit Aggregates to August 2018, out today tells an interesting story.

The 12 month growth by category shows that owner occupied lending is still growing at 7.5% annualised, while investment home loans have fallen to 1.5% on an annual basis. Overall housing lending is growing at 5.4% (compared with APRA growth of 4.5% over the same period, so the non-banks are clearly taking up some of the slack). Still above wages and inflation. Household debt continues to rise.

The more noisy monthly data shows investor loans slowing, while business lending is up. Personal credit continues to slide.

The non-bank sector (derived from subtracting the ADI credit from the RBA data) shows a significant rise up 5% last month in terms of owner occupied loans.  This is indicative, as there are timing and other issues when making this comparison, but its the best available.  This is consistent with our survey data which slows that non-banks are indeed seeking to grow their books under the lighter non-ADI regulation.

Finally, total lending lose to 1.78 trillion, with owner occupied loans at $1.2 trillion and investment loans at $593 billion.  The mix of loans fell to 33.2% of housing loans for investment lending. Business lending was $934 billion, comprising 32.5% of all credit.

In summary, housing debt is still rising too fast . Period.  APRA needs to look at the non-banks. And quickly.

Credit Momentum Eases – RBA

The monthly RBA credit aggregates for July are out today.   Total credit for housing rose 0.2% in the month, to $1.77 trillion, with owner occupied credit up 0.5% to $1.18 trillion and investment lending down 0.1% to $593 billion. Investment housing credit fell to 33.4% of the portfolio, and business credit was 32.5%.

Interestingly the RBA’s seasonally adjusted numbers lifted credit growth from the non-adjusted set, but we are skeptical of these adjustments, given the current abnormal conditions in the market (especially taking into account the APRA data today).

That said, the trends tell the story, with the noisy monthly chart

less easy to read than the annual charts. Owner occupied housing is growing at 7.6%, investment housing at 1.5% and overall housing at 5.5%.

We still see some growth in the non-bank sector, and this month the RBA reported NO switching between investment and owner occupied loans.

So overall, the credit tightening continues to bite and investors are at the sharp end. No reason to think this will change, as it is driven by more responsible lending practices.

Investment Lending Slides, But Overall Credit Higher

The RBA released their credit aggregates to June 2018 today.  Overall credit grew 0.3% in the month to $2.84 trillion, up $9.7 billion. to a new record.

Within that, owner occupied housing lending rose 0.6% or $6.6 billion to $1.18 trillion, while investment lending fell $800 million, down 0.1% in seasonally adjusted terms, or rose $1 billion, up 0.2% in original terms. (I have no idea what adjustments the RBA makes, its not disclosed!).

Investment lending fell to 33.5% of the portfolio. Total lending for housing is a new record $1.77 trillion, and remember this is at a time when housing debt to income is knocking on the 200 door, and we are one of the most in debt nations on the planet.  Least we forget, loans need to be repaid, eventually!

Business lending in seasonal terms rose 0.4%, up $4.1 billion to $921 billion, and fell to 32.2% of all lending – we see a continued fall in the proportion of lending to business, as opposed for housing, which is not good.

Personal credit rose $600 million, up 0.4% in original terms or fell $300 million in seasonally adjusted terms down 0.2%.

The monthly seasonally adjusted numbers highlight the slide in investor lending, and the stronger owner occupied lending.

Finally, we also estimate the growth in on-bank lending, by taking the original RBA data, and comparing this with the ADI data from APRA also out today.

In essence, the relative share of home lending going to the non-banks is rising, to around 7% of all loans, and the bulk of the loans being written are for owner occupied borrowers.

A caveat here, as the non-bank segment of the data will always be a bit off, because there is less timely data captured from this small, but growing part of the market. Something which APRA needs to address.

So more of the old same old, same old, housing lending still growing way above inflation and wages, forcing housing debt higher, at the expense of business investment.

We have not fundamentally addressed the credit elephant in the room. Despite all the noise.

Perhaps the regulators would like to tell us, how much debt is too much? We clearly have not hit their pain threshold yet, despite the rising financial stress in many households.

 

 

 

RBA Credit Aggregates May 2018

The RBA released their credit aggregates to end May 2018 – the ying, to APRA’s yang…  This is a market level view, including belated and partial data from the non-bank sector, so its always a larger set of numbers than the APRA ADI set, which we discussed previously.

The RBA data shows that total housing lending rose 0.37% from last month, up $6.6 billion to $1.76 trillion. Within that, owner occupied housing rose 0.55% or  $6.5 billion, and investment lending rose just 0.02% or $220 million. Personal credit fell again, and business lending fell 0.3% down $2.5 billion to $917 billion, all seasonally adjusted.

Investment lending made up 33.5% of all housing loans, down from 33.7% the previous month, and continues to slide, as expected. However the drop in business credit meant the proportion of commercial lending fell to 32.4% of all lending.

The monthly growth trends show the fall in business lending, and the fall-off in investor lending, all seasonally adjusted, which in the current environment may well be writing the volumes down too far.

The 12 month rolling trend shows owner occupied housing still running at 7.9%, well above inflation and wage growth, while investor lending has a read of 2%, which is the lowest see since the RBA series started to be published in  1991. Have no doubt, investor lending is fading.

Personal credit dropped an annualised 1.3%, the largest fall since the fall out from GFC in 2009. Business lending was around 3.8% annualised and slid a little.

Finally, the non-bank contribution to lending growth can be imputed by subtracting the APRA ADI data from the RBA market data. This is an inexact science because of timing and coverage issues across the data.  But it tells an interesting story, with non-bank growth rates sitting at around 20% for owner occupied loans and around 18% for investor loans, on a twelve month rolling basis. So we can see where some of the slack in the system is being taken up as non-banks flex their muscles. Regulation of this sector is a concern, as Moody’s highlighted recently.  APRA has this responsibility, but how actively they are looking at this segment of the market, when data is so hard to acquire is a moot point.  My guess is they are light on.

Non Bank Lending Up, Overall Growth Lower, But Another Record Hit

The RBA has released their credit aggregates to April 2018. Total mortgage lending rose $7.2 billion to $1.76 trillion, another record. Within that, owner occupied loans rose $6.4 billion up 0.55%, and investment loans rose 0.14% up $800 million.  Personal credit fell 0.3%, down $500 million and business lending rose $6.3 billion, up 0.69%.

Business lending was 32.5% of all lending, the same as last month, and investment mortgage lending was 33.7%, slightly down on last month, as lending restrictions tighten.

The monthly trends are noisy as normal, although the fall in investor property loans is visible and owner occupied lending is easing.

But the annualised stats show owner occupied lending still running at 8%, while business lending is around 4% annualised, investment lending down to 2.3% and personal credit down 0.3%.  On this basis, household debt is still rising.

One interesting piece of analysis we completed  is the comparison between the RBA data which is of the whole of the market and the  APRA data which is bank lending only.

Now this is tricky, as the non-bank data is up to three months behind, and only covers about 70% of the market, but we can get an indication of the relative momentum between the banks and non banks.

We see that non-bank lending has indeed been growing, since late 2016. The proportion of loans for property investors is around 28%, lower than from the banks.  Back in 2015, the non-bank investor split was around 34%.

The percentage growth from the non-bank sector appears stronger than the banks. Across all portfolios, loan reclassification is still running at a little over $1 billion each month.

Finally if we look at the relative growth of owner occupied and investment loans in the non-bank sector we see stronger investment lending in the past couple of months.  Bank investment property lending actually fell on April according to APRA stats.

As expected, as banks throttle back their lending, the non-banks are filling some of the void – but of course the supervision of the non-banks is a work in progress, with APRA superficially responsible but perhaps not actively so.

We would expect better and more current non-bank reporting at the very least APRA, take note!

 

Non Bank Mortgage Lending Accelerates

The RBA have released their credit aggregates to March 2018.  Looking at the month on month movements, total owner occupied lending rose 0.6%, or $6.89 billion to $1,157.8 billion and investor mortgage lending rose 0.17% or $1.03 billion to $590.2 billion.  So overall mortgage lending rose 0.46% in the month, up $7.92 billion (all seasonally adjusted) to $1.75 trillion. A record.

Personal credit fell 0.12%, down $0.18 to $152 billion. Business credit rose 0.88%, or $7.99 billion to  $913 billion.

The trends show that the share of investment loans fell a little on the total portfolio to 33.8%, while business lending was 32.5% of all lending, up just a little.

The 12 month average growth rates show that owner occupied loans rose 8.1%, while investment loans grew 2.5%. Business rose 4.2%, and personal credit fell again. Overall growth rates of credit for housing slide just a little to 6.1%. This is 3 times the rate of inflation and wage growth! Household debt therefore is still rising.

The noisy monthly data highlights how volatile the business lending trends are.

They also reported that the switching between investor and owner occupied loans continues to run at similar levels, after the hiatus in 2015.

Now, we can also make comparisons between the total loan pool, and those loans written by the banks (ADS’s) by combining the APRA bank data and the RBA data. There are a few catches, and the ABS suggests that not all the non-banks are captured.

But set that aside, we have plotted the relative value of the mortgage pools at the total level, and the ADI level (not seasonally adjusted). The trend shows around 7% of lending is non-bank, up from 5.7% in 2017.  In value terms this equates to  $124 billion, up from $90 billion in 2016.

Another way to show the data is to look at the rolling 12 month growth trend. This shows that non-bank lending has been growing at up to 30% and significantly higher than the market at 5.94%.

This is highly relevant given Bluestone’s recent announcement and Peppers recent $1 billion securitisation issue.

So this is all playing out as expected. As the majors throttle back on new mortgage lending under tighter controls, the non-bank sector continues to pick up the slack. This is a concern as the regulatory environment for these lenders is weaker, with both ASIC and APRA now involved, ASIC from a responsible lending perspective and APRA from new supervision on the non-bank sector, despite their failure in the core banking sector. So we expect to see significant non-bank lending growth, ahead, which will stoke the current massively high household debts even higher.

The total loan mortgage growth is still significantly higher than income growth. This is not sustainable, and will lift mortgage stress higher again – our new data will be out in a few days.