Business credit applications flat, with mining states digging the hole

Businesses were timid about obtaining credit in the final quarter of 2013, with overall business credit growth up just 0.9% compared to the same period in 2012, new research shows.

The findings from the Veda Quarterly Business Credit Demand Index show the results were up from a detraction of 0.7% in the September quarter, which Veda general manager of commercial credit risk Moses Samaha attributed to federal election uncertainty.

The results measure the volume of credit enquiries that go through the Veda Commercial Bureau by financial institutions and corporations across Australia.

The modest change in overall business credit enquiries reflects an increase in business loans, up 5.2% and a small rise in trade credit at 1.2%, countered by a fall in asset finance enquiries, down by 5%.

Data gathered from mining states Western Australia, Queensland and the Northern Territory found that credit enquires were subdued, contracting 0.6% for the quarter, but up from -2.1% in September. 

Western Australia was the weakest, with business credit applications down by 5.2% throughout 2013.

In non-mining states, growth in business credit enquiries picked up marginally, averaging at 1.7%, up from 0.1% in the previous quarter. 

Businesses in the Northern Territory lodged the most enquiries, up 8.4%, with the ACT up 6.6% and Tasmania up 4.5%. In NSW enquiries were up 1.9%, Victoria up 1.6%, and Queensland up 1.5%. South Australia was down by -1.3%

When it comes to loan enquiries, the states recording the strongest growth for the quarter were NSW at 8.8%, South Australia at 6.6%, Queensland at 6.4%, Victoria at 5.5%, ACT up 5.4% and the Northern Territory at 2.2%. 

However in Western Australia, demand for business loans fell for the second consecutive quarter at -5.7%, and Tasmania also went down by 4.9%.

The most popular loan enquiries were commercial mortgage applications at 37%. Demand for commercial credit cards dropped by 18%.

Queries for trade credit showed weak growth on average, however in the Northern Territory it was up by 19.9% and in Tasmania it was up by 13.1%.

Asset finance enquiries were weakest in Western Australia, down 11.1% and Queensland, down 8.3%.

Samaha told SmartCompany the data shows the downturn in Australia’s resources sector and generally weak business conditions are impacting business confidence when it comes to loans and credit.

He says this is despite the federal election being over, the Australian dollar being lower and the lower interest rates.

Samaha says December was showing an “overall better result” than September, and it is showing some signs of turnaround for the year ahead.

He says January is “looking strong”, and he expects a continuation of improvement.

“Mining activity is lower, and we now are looking at other parts of the economy to drive activity,’
 he says.

Samaha says “a retail-led recovery” could see a boost to business confidence and an increase in credit applications and borrowing as the year progresses.

He also says Australia needs to see improvement in the auto financing sector, which has seen a drop in activity.

“There has not been a full rectification of the contraction caused by the prior government’s FBT rule changes last July,” he says.