Business lending takes a dive, as sentiment remains low, RBA reveals

Business loan balances contracted by the biggest monthly amount in June since September 2010, the Reserve Bank has revealed, as business sentiment remains at a low.

According to figures from the RBA, business credit slid 0.7% in June after being flat in May, with loans to companies down 2.4% over the year to June.

On a three-month annualised basis, business lending contracted by 5.6% during the quarter and by 2.7% year-on-year.

Personal loans also slipped, falling 0.4% in June after a 0.1% decline in May, and were only 0.3% higher over the year to June.

Total system credit, including business, personal and housing loans, contracted by 0.1% in June.

The figures reveal ABZ recorded the best loan growth – a 6% rise in the month – while the Commonwealth Bank was the worst performer of the big four banks, declining 33%.

On a three-month basis, only ANZ and NAB have managed to maintain business loan growth, with ANZ ahead at 4% and NAB at 1%.

NAB is Australia’s number one business bank but has been focusing on retail banking to compensate for the lack of growth in its historically dominant area.

Westpac senior economist Andrew Hanlan says expectations that the economy would gain momentum, after the disruption caused by natural disasters earlier this year, have proved false.

“What we’re seeing is that the economy still remained subdued in the second quarter,” he says.

Meanwhile, the latest Australian Performance of Manufacturing Index reveals the sector fell 9.5 points to 43.4 points in July, putting it well below the 50-point level separating expansion from contraction.

The results are based on the responses of more than 200 companies from a rotating sample, and are compiled by PricewaterhouseCoopers and Australian Industry Group.

The latest index highlights the tough trading conditions that continue to restrict the already-struggling sector.

Only three of the 12 sub-sectors expanded in July. The best performing sub-sector was construction materials, while wood products and furniture was the weakest performing sub-sector.

AIG chief executive Heather Ridout says in addition to the high Australian dollar and sluggish domestic demand, the prospect of a carbon tax is clearly weighing on business sentiment.

“We are currently in the midst of a boom and gloom economy… The high dollar and high interest rates are impacting on the big employing sectors,” Ridout said in a statement.

“This, together with the volatile and precarious state of international economic conditions and ongoing political uncertainty in Australia, are seriously undermining business confidence in large parts of the economy.”