Lending contracts in May for first time since 2011

Total lending in Australia contracted for the first time since 2011 in May, as businesses reined in borrowing through the downturn.

Business lending has turned down significantly during the COVID-19 pandemic. Picture: NCA Newswire

The total stock of lending in Australia contracted for the first time since 2011 in May as businesses reined in borrowing through the downturn, new figures from the Reserve Bank show.

Total credit shrank by 0.1 per cent in the month, with annual growth slowing to 3.2 per cent from 3.6 per cent over the 12 months to April.

Business lending drove the result, as it fell by 0.6 per cent in May – also the first fall in nine years – after expanding by 0.2 per cent in April. Year-on-year business growth remained positive but decelerated to 5.9 per cent from 6.7 per cent.

The Australian Banking Association as at 19 June reported that 216,000 business loans have been granted deferrals on repayments to assist them through the pandemic.

While firms have pulled back on credit as the economy enters its first recession in nearly three decades, demand for housing credit by owner occupiers remained robust, climbing by 0.5 per cent and matching the pace of eight of the previous nine months.

Year-on-year owner-occupier credit growth accelerated to 5.4 per cent, from 5.3 per cent in April.

Lending to residential property investors, in contrast, fell for the third consecutive month, down 0.3 per cent after falling 0.2 per cent in April. The year-on-year fall in loans outstanding to landlords moved to 0.8 per cent in May, from a 0.6 contraction over the 12 months to April.

Personal credit continued to soften, falling by 1.2 per cent in May to be 10 per cent lower than 12 months earlier.