Here's a consequence of how falling business confidence is affecting the wider community.
In July, bank lending to business fell sharply, down a very chunky -$1.731 billion or -1.6% month-on-month. It is not unusual for there to be a fall in July from June as part of a seasonal shift, but the average fall over the past three years is just -$337 million. The 2018 fall is five times as large.
In fact it is so large, it caused overall bank lending to fall by more than -$300 mln, overwhelming the small rises in lending to the rural sector (+$388 mln), and the housing and personal consumer lending sector (+$1.008 bln).
And all this comes as the amounts in bank deposit accounts pick up. They are up +0.9% month-on-month and +7.3% year-on-year. That is far faster growth than overall lending growth of +5.2%.
And that is being driven by term deposit growth, up a very impressive +1.5% month-on-month and +10.3% year-on-year, heady growth in anyone's terms.
That means bank deposits grew by a massive +$2.6 bln more than bank lending in July from June.
This is the first time since October 2011 that we have seen such a divergence between loan 'growth' and deposit growth. And back in 2011, wholesale swap rates fell a full -50 basis points over the following two months, a fall from 3.00% to 2.50%. Back then, the one year term deposit rate was 4.40%. Now, at the end of July 2018 we were at just on 2.00% for a one year swap rate, at 3.35% for a one year TD rate. If history repeats, a one year TD rate could fall to 2.85% and that would push it to an all-time low.
Essentially, declining business investment is undermining savers' returns. Term deposit offers are falling. And unless loan demand picks up, the situation will get tighter for savers. More cuts have been announced recently, more this morning with RaboDirect cutting some rates.
|RBNZ||NZ$ bln||$ bln||$ bln||$ bln||$ bln||%||$ bln||%|
|S10||Total bank deposits||316.2||336.3||339.2||2.9||0.9%||23.0||7.3%|
|C5||Total bank lending||406.6||428.3||427.9||-0.3||-0.1%||21.3||5.2%|
Proper comparable data is only available from the RBNZ from December 2016. But the excess of lending over deposits is now -$88.8 bln, the lowest level in a year and down from -$92 bln in June.
While some may see this as a necessary rebalancing, the consequences for savers are likely to be tough. A rebalancing because business investment slows is the hard way to do it. Rebalancing in a rising market would be the preferred way with higher savings rates pushing the correction.