After a year many business owners would rather forget, lending to business is picking up.

Data from the Reserve Bank of Australia shows business credit climbed 1.6% in June 2021, the highest monthly growth since March 2020. On an annual basis, business lending went up 0.6% after four straight months of negative growth.

Lending to small and medium-sized enterprises (SMEs) was a significant contributor to this growth. The volume of lending to SMEs resumed growth in the June 2021 quarter, following the trend set by the large business sector, where lending had been on the rise since the start of 2021.

This signals improved confidence among SMEs.

According to a recent report by business lender Banjo, 65% of respondent SMEs intended to seek funding in the next 12 months to help grow their business. The majority (81%) felt confident about the long-term prospects of their business. The survey was conducted in March 2021.

Figure 1: Australian credit growth by sector

 width=

Source: Reserve Bank of Australia Chart Pack, July 2021

This signals improved confidence among SMEs.

According to a recent report by business lender Banjo, 65% of respondent SMEs intended to seek funding in the next 12 months to help grow their business. The majority (81%) felt confident about the long-term prospects of their business. The survey was conducted in March 2021.

Increased confidence supported recent business credit growth, according to BankSA Senior Economist Jarek Kowcza.

“Heading into the lockdowns, elevated confidence and high utilisation of existing productive capacity suggested that businesses were in a good position to increase their levels of investment to create additional capacity,” says Kowcza.

“Business investment is also currently supported by generous tax incentives from the government and continued accommodative monetary policy settings,” he adds.

Declining confidence levels

However, ongoing lockdowns will inevitably cast a pall over business confidence and appetite for credit. And based on Australia’s 2020 experience, banks might think twice about offering loans to businesses from hard-hit industries.

In fact, NAB’s business surveys in June and July showed that business confidence has already taken a hit. Confidence fell nine points to +11 index points in June. And in July, it sharply declined by 19 points to -8 index points.

Figure 2: NAB business survey

 width=

* Net balance; deviation from average since 1989.
Source: Reserve Bank of Australia Chart Pack, July 2021

“Confidence took a big hit in the month, with optimism collapsing on the back of ongoing restrictions,” says NAB Group Chief Economist Alan Oster in the July report.

“New South Wales declined by a very large 27 points on the back of ongoing uncertainty about how quickly the outbreak could be contained,” he adds. “That said, confidence was softer everywhere with uncertainty over the spread of the virus in the other states and border closures.”

Quick recovery to support credit growth

Still, Oster is confident that recovery will be fast.

“We know that once restrictions are removed, the economy has tended to rebound relatively quickly,” he says.

Kowcza agrees. “This [recovery will be] supported by pent-up demand from consumers and support packages from the federal and state governments. Additionally, monetary policy settings remain extremely accommodative and supportive of lending growth.”

Over the long term, Kowcza expects continued economic recovery to buoy credit growth. Significant investment tax incentives from the Australian government will also provide a boost.

“Some businesses have also been running down the large cashflow buffers they accumulated during the pandemic, which increases the likelihood they will require additional credit,” he says.

“These factors will continue to support demand for business credit into the future.”

SHARE
Back to Insights and News

Related articles

All insights

Non-bank lending preferred by nearly half of Australian SMEs

Small and medium-sized enterprises (SMEs) in Australia are increasingly turning to alternative financing options as they seek a faster and simpler onboarding process. According to the latest SME Growth Index report from ScotPac, the preference of these businesses for non-bank borrowing reached a record high of 47% in the first quarter of 2023. This was…
Read More

A mixed outlook for interest rates and the housing market

The frequency of official interest rate increases has slowed in recent months. It will be interesting to see whether this trend continues and, if so, what impact it could have on the Australian housing market. In April, the Reserve Bank of Australia (RBA) chose to hold the cash rate at 3.6%. In the previous month,…
Read More

Good news for homeowners as housing values decline eases

Australia’s housing value slump has eased, according to CoreLogic’s latest Home Value Index. The index reveals that the rate of decline has been decreasing since September 2022, with February’s 0.14% decrease being the smallest monthly fall since the Reserve Bank of Australia (RBA) began increasing interest rates in May 2022. A 0.3% increase in Sydney…
Read More