Business credit demand lifts

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In news that points to healthy business confidence, business credit demand is up according to the latest Veda Quarterly Credit Demand Index.

Demand for business credit applications grew at an annual rate of 1.7% in the June quarter, which was driven by an increase in asset finance (up 3.2%) and business loan applications (up 1.6%), while trade credit applications increased slightly by 0.5%.

Veda’s Moses Samaha says the growth in business credit applications, which was achieved despite the protracted federal election, is encouraging.

“Historically we have seen a slowdown in business credit demand in the lead up to an election, followed by a rebound when the newly elected government has been established,” Samaha explains.

“The fact that this election cycle did not negatively impact credit demand growth is a good sign, and indicates that the next quarter could be strong.”

The ACT and New South Wales posted the strongest demand for overall business credit applications in the June quarter, up 4.9% and 4.3% respectively, with Victoria up by 2.7%.

However, Northern Territory recorded the biggest fall (-3.3%), followed by Tasmania (-2.1%), Western Australia (-1.9%) and Queensland (-1.3%). Demand in South Australia decreased by a modest -0.5%.

Digging deeper on the sub-indexes, and Tasmania topped the table for business loan applications, up by 9.1% in the June quarter. Positive growth was also seen in the ACT (+8%), New South Wales (+4.8%) and Victoria (+2.1%).

South Australia posted the biggest fall in business loan applications (-5.2%), followed by the mining states: Northern Territory (-4.8%), Queensland (-1.9%) and Western Australia (-0.8%).

For trade credit applications, demand was strongest in New South Wales (+3.4%), Victoria (+1.6%), and South Australia (+1.1%), while large falls were recorded in the ACT (-9.0%) Tasmania (-6.2%) followed by Western Australia (-3.0%), Queensland (-2.4%), and the Northern Territory (-1.8%).

And in the asset finance category, ACT increased by a significant 17.9%, followed by South Australia (+5.2%), Victoria (+4.8%), New South Wales (+4.6%) and Queensland (+1.1%).

Tasmania recorded the largest fall (-12.1%) with the Northern Territory (-3.4%) and Western Australia (-2.1%) also showing contractions.

Veda highlights the substantial differences in the volume of demand for asset finance by account type: applications for hire purchase fell significantly (-16.7%) compared to the healthy demand for personal loans (+13.2%), leasing (+12.0%), commercial rental (+18.8%), and bill of sale (+17.1%) in the June quarter.

“Moderate growth in asset finance was expected in the lead up to end of the fiscal year. Some businesses may have accelerated their spending to ensure it occurred in FY16, which could have helped drive asset finance growth,” says Samaha.

“Similarly, the growth may have been aided by small businesses wanting to take advantage of the accelerated depreciation rules for assets under $20,000, which was implemented as part of last year’s federal budget and ended on 30 June this year,” he concludes.

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