Credit - financial system

Data below are sourced from the Reserve Bank of Australia and show total credit outstandings (including securitisations) and the change in credit outstandings.
  
Part 1 below relates to the broader financial system (not just banks), even though, banks are the major contributor to the data.  Part 3 presents data for bank credit outstandings.
 
Credit outstandings (i.e. gross loans and advances) make up the largest category of financial institution assets.  For banks, credit outstandings are around two-thirds (65%) of bank assets.
 
A simple example of the underlying calculation for credit outstandings is:

• A bank has a stock or balance of $60 billion of loans on its books at the start of a year, which increases to $70 billion by the end of the year;
• During that same year, it made $15 billion in new loan commitments to customers while $5 billion was paid back by customers; hence

The stock or balance of loans for that bank is $70 billion at the end of the year.

1. Credit outstandings – All Financial Institutions

Total credit outstanding

At the end of October 2010, total credit outstanding (including securitisations) across all Australian Financial Institutions was $1.97 trillion.  Total credit outstanding increased by only $51.2 billion over the past year.

Over the 12 months to the end of October 2010, total credit growth was 3.3%.  For over a year, annual growth rates have been at the lowest levels since 1993.
  
The most recent peak saw total credit growing at a strong pace of 16.3% over the calendar year 2007.  After that, there were 24 consecutive months of falling annual growth rates from December 2007 to December 2009.

Total credit growth rarely falls below zero on an annual basis.  Such a fall of 1.5%, however, was seen during the 1991-92 economic downturn.

The chart above shows the rate of credit growth over the previous year, the chart below shows the individual monthly changes in total credit outstandings.

Throughout most of 2009, monthly growth rates for total credit outstandings were around the lowest levels since 1992.  In 2009, total credit grew by 0.1% per month, on average.  The first five months of 2010 saw monthly credit growth averaging at 0.4% per month while the second five months (June to October) monthly average credit growth has dropped to a low level of 0.1%.

Housing

At the end of October 2010, total credit outstanding for housing (including securitisations) was $1.15 trillion.   This was made up of $802.5 billion (70%) in loans to owner-occupiers and $345.9 billion (30%) in loans to investors.           

The chart below splits housing loan outstandings as to whether these are to owner-occupiers or investors.

Over the 12 months to the end of October 2010, credit outstandings for housing grew by 7.7%.  For most of 2008, 2009 and 2010 to date, annual growth rates have been the lowest since 1983.  A low of 6.9% was reached in April 2009 and May 2009.  This was the lowest rate of growth on record (the data series commenced in August 1977).

Monthly growth rates for housing credit outstandings have fallen to low levels throughout 2008, 2009 and 2010 to date.  In fact, over the five years prior to the global financial crisis, monthly growth rates average 1.23% per month. Since the GFC, however, this has fallen considerably to 0.66% on average per month.

Over the 12 months to the end of October 2010, growth in housing credit to investors was 8.1% while for owner-occupiers it was 7.5%.

Personal

At the end of October 2010, total credit outstanding for personal lending (including securitisations) was $141.1 billion, $4.2 billion more than a year ago.

Over the 12 months to the end of October 2010, personal loan outstandings increased by 2.4%.  Since May 2009, where the fall in personal loan outstandings had been 7.6%, there has been a rapid turnaround.  After peaking at 3.2% in July 2010, the annual growth rate has turned and is now down to 2.4%.

For 16 of the 19 months to July 2009, monthly growth rates for personal loan outstandings were negative.  Such a lengthy episode of negative growth had not been seen since 1991 and 1992 when 16 of the 24 months showed negative growth rates.   

In 2007, the average monthly growth for personal lending was a solid 1.1%.  In 2008, the average monthly growth was -0.4%.  This improved but still remained weak (0.0% on average per month) in 2009.  To date in 2010, the average monthly growth rate for personal lending remains weak at 0.1%.

Business Lending

At the end of October 2010, total credit outstanding for lending to business (including securitisations) was $683.8 billion, a fall of $37 billion over the past year.   A peak of $781.3 billion was reached in November 2008.    

Business loan outstandings fell by 3.2% over the 12 months to the end October 2010.  The most recent peak in growth was 23.8% over calendar year 2007.  As can be seen from the chart below, there were 23 consecutive months of falls in the annual growth rate from December 2007 to November 2009.  By November 2009, business loan outstandings were falling at a record rate of 8.2% on an annual basis.

To date in 2010, average monthly for business outstandings has been negative i.e. -0.2%.  This is not as weak as for 2009 at -0.6%.  Moreso, two negative years of average monthly growth have not been seen since the early 1990s.  In fact, there were three years in the early 1990s (1991, 1992 and 1993) when average monthly growth were negative.

Calendar Year summary – credit growth

This section provides a summary of credit growth for the last ten calendar years.  That is, the data below is exactly the same as the corresponding annual growth rate data presented above, except that it shows the results for calendar years only.

	Housing
Annual Credit growth	Owner-occupiers	Investors	Total	Personal	Business	Total
2000	12.2%	20.6%	14.2%	14.2%	8.6%	11.5%
2001	17.2%	15.2%	16.1%	8.5%	2.2%	9.0%
2002	15.8%	25.1%	18.5%	9.8%	5.1%	11.9%
2003	16.9%	29.9%	20.9%	14.7%	8.0%	15.1%
2004	16.8%	19.7%	17.8%	12.7%	8.0%	13.6%
2005	13.6%	11.0%	12.7%	9.9%	15.6%	13.5%
2006	15.0%	11.3%	13.8%	11.5%	15.7%	14.3%
2007	12.1%	10.9%	11.7%	13.7%	23.7%	16.3%
2008	8.7%	5.7%	7.8%	-5.0%	8.0%	6.8%
2009	9.9%	4.2%	8.2%	-0.4%	-7.0%	1.5%

2. Credit outstandings – Banks and Non-Banks

Banks’ credit outstandings were $1.55 trillion or 90.7% of the total, an increase of 5.8% over the previous year.   Non-bank financial institutions (NBFIs) had $158.7 billion in credit outstandings, increasing by 3.4% over the same period.

Source: RBA

The banks’ share of lending has grown over time and it is now at 90.7% of all lending by AFIs.  The increase, over time, is due to a number of significant structural and systemic changes, such as NBFIs becoming banks, banks buying or merging with NBFIs, more bank products and services being introduced, and foreign banks entering the system.

Since the onset of the global financial crisis (August 2007) banks’ share of gross loans and advances has increased from 87.3% to 90.7%.  Much of this increase can be attributed to the effects of the global financial crisis.  That is, as debt markets slowed or closed in 2008, more businesses sought their funding from banks while the ability of smaller non-bank loan providers to access funds to support their lending to households and businesses was constrained.
   
It is not unusual that banks’ proportion of assets increases during times of economic disruption or downturn.  Over the three years to the start of 1993 (the last major recession), banks’ share of gross loans and advances increased from 60.9% to 71.2%, and over the two years from the downturn in 2001, banks’ share increased from 80.0% to 84.9%.

3. Banks – credit outstandings

At the end of October 2010, Reserve Bank of Australia statistics show that housing loans made up $984 billion of loan outstandings of Australian banks – with $680 billion of loans to owner-occupiers and $303 billion to investors.  Business loans accounted for $463 billion, personal loans were at $106 billion and there was a total of $231 billion of ‘other’ lending (to financial intermediaries and to the public sector).
 
When looking at the data on bank lending, the category ‘Other’ is often excluded.  If this is removed, then almost 70% of bank lending is to households (i.e. housing and other personal) and around 30% is lending to business.

The following chart shows annual growth rates for the three key categories of bank lending.  In the lead-up to the global financial crisis and throughout most of 2008, growth rates for the stock of businesses loans were high.

Bank credit outstandings – distribution

At the end of October 2010, housing loans to owner-occupiers made up 44% of the loan books of banks while housing loans to investors made up 20%.  That is, a total of 64% of loans made by banks are for housing.  The remaining loans were to businesses (30%), personal loans (4.0%) and credit cards (2.9%).
 
The most recent data, for October 2010, shows a significant rise in the proportion of housing loans (mainly to owner-occupiers).   This result has been heavily influenced by generally lower interest rates for housing as well as the impact of government initiatives for first homebuyers.

Updated 15 December 2010