New figures show a slowing in the growth rate of household borrowing, while deposits have picked up after falling away recently

New figures show a slowing in the growth rate of household borrowing, while deposits have picked up after falling away recently

By David Hargreaves

Whether it be the new LVR rules, banks beginning to 'ration' credit, or a combination, the latest month has seen a slowing in the growth rates of household borrowing from multi-year highs.

At the same time, October also saw an uptick in the rate of saving, reversing a recent falling off in the rate of deposit growth.

Both moves are likely to please the Reserve Bank, though particularly the slower credit growth. Rapid rises in the amount of borrowed money potentially add to financial stability risks.

The RBNZ's monthly sector credit figures for October show that total household claims (mostly mortgages, but also including consumer finance) rose a seasonally-adjusted 0.6% to $243.624 billion from a revised $242.100 billion in September.

The 0.6% seasonally-adjusted growth is down from 0.7% the previous month (revised from an original 0.8%) and is the slowest rate of growth since March this year. The annual rate of growth edged down to 8.7% from 8.8% in September.

September's annualised percentage gain was the highest seen since mid-2008.

In terms of just mortgages, the total rose during October by nearly $1.4 billion to $227.945 billion, making for an annual increase of 9.1% - down from 9.2% the previous month.

Deposit growth increases

Banks have been concerned that the rate of credit growth is far outpacing that of deposit growth - savings. The need for banks to source additional funding from offshore has forced up their funding costs and has seen mortgage rates start to move up, while banks have been sweetening deposit rates to attract more local funding.

The RBNZ's household deposits figures for October showed that during the month the amounts invested with banks rose by nearly $1.3 billion to $159.246 billion, which was the biggest monthly increase since March - though still slower than the credit growth.

Still, the rise will be welcomed by the banks after recent stagnating of deposit figures and signs that the banks are getting squeezed and having to compete strongly for funds.

The annual rate of growth in total household deposits increased for the first time in several months, rising to 7.5% from 6.7% in September. However, this growth was in double figures in the first half of the year.

Business booms

Separately, business credit has continued to grow very strongly demonstrating the confidence in the economy at the moment. Businesses borrowed nearly an extra $1.9 billion in October, taking the total outstanding to $95.875 billion. The annual rate in growth was 8%, which is the highest since February 2009.

Agricultural lending, something that the RBNZ remains concerned about, has stayed fairly level, rising just slightly to $60.912 billion, with the annual increase 3.8%, the lowest rise in two years.

ASB's view

ASB economist Kim Mundy said the latest investor (40% deposit) Loan-to-Value (LVR) restrictions appeared to be weighing on borrowing activity.  

"We expect the pace of housing credit growth to slow further going forward, in line with further slowing in the housing market."

Mundy said that if the upward trend in business borrowing continues, this would be "a very encouraging sign that improved economic confidence is boosting credit appetites".

She noted that annual agricultural credit growth had slowed significantly during the course of this year. "However, shortages in dairy farmers’ cash flows (until mid-2017) should keep a floor under credit demand."

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Banks have been concerned that the rate of credit growth is far outpacing that of deposit growth - savings. The need for banks to source additional funding from offshore has forced up their funding costs and has seen mortgage rates start to move up, while banks have been sweetening deposit rates to attract more local funding.

How do banks collectively develop concerns about their deliberate lending practices after the fact? They and nobody else chose to issue mortgages to those that were without funds and desired to spend today what they didn't have, but hoped to at a later date. Equally, the banks chose to raise a liability against these mortgage assets with NZD domestically derived from currency swapped foreign wholesale funding rather than issue a debt contract and generate an opposing ledger credit in the debtors savings account and underpin it with extra regulatory capital. The important point is what were the marginal contingent capital cost advantages with respect to the chosen rational actions, because these loans were not accidents that called for unexpected, but now apparently unwanted funding decisions?

Tsk, tsk, silly old RBNZ, they are just so last year. If they were up to speed they would be floating a real proposal with actual teeth, instead of the limp drivel they so seriously intone.
https://www.minneapolisfed.org/publications/special-studies/endingtbtf

This shocking Minnesota Fed proposal is daring, courageous and exciting (ie, probably doomed, but you never know). It proposes that banks actually have real reserves of 20 to 35% of their loan book. Not the puny, insignificant 2% the Aussie banks get away with here, with their 25% weighting of 8% smoke and mirrors. The bigger the bank, the bigger the systemic risk, therefore the higher the required reserve ratio. The objective of the Minnesota Fed proposal is to make it uneconomical for banks to be too big.

Where is the equivalent New Zealand proposal from the RBNZ? Asleep at the wheel presumably.

once again all the banks move in tandem. the rbnz has created a monster. why and how they approved our entire banking system to be controlled out of Australia, is beyond me. they must have rocks in their head.

It fascinates me that the ComCom have thrown cold water on the merger application from NZME Limited and Fairfax NZ Limited when really they both regurgitate the same old news, and we live in an era of online, instantaneous news. Yet clearly having nz inc. being controlled offshore didn't raise red flags. they are a seriously confused lot, probably living in cloud cuckoo land, or locked away in some cupboard somewhere

Gotta laugh