Softer commercial lending outlook for mining states

By David Cannington
Wednesday, 17 October 2012

August ABS lending finance data reflects a softer commercial lending outlook for the mining states on the back of weaker commodity prices.

In original terms, commercial finance decreased in Victoria, South Australia, Western Australia and Tasmania in August and was higher in all other states and territories.

The largest monthly decrease was in South Australia (-17.2% month-on-month) followed by Tasmania (-11.5% m/m) and Victoria (-6.6% m/m).

In annual terms, commercial finance growth continues to be highest in Western Australia (+13.2% year-on-year), followed by Queensland (+3.6% y/y), while commercial finance in Victoria is the weakest (-8.1% y/y).

Looking forward, despite a softer economic outlook, a solid pipeline of committed major mining and energy projects should support moderate growth in commercial finance in the mining states into 2013, while the non-mining states are expected to continue to underperform.

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Nationally, commercial lending growth has more recently been weighed down by financial market volatility and global economic weakness – from a recent peak of $34.5 billion in April 2012 to $27.6 billion in August – to be 13.3% lower over the year to August 2012 in trend terms.

Over the same period, personal lending increased by a modest 1% in trend terms, reflecting weak margin lending and continued volatility in equity markets.

In contrast, strong annual trend growth in lease finance (+25.3% y/y to August) was driven by an increased aversion to asset ownership and exposure to asset price risk.

In original terms, annual growth in wholesale finance was higher (+32.4% y/y), while finance for the purchase of plant and equipment (-1.1% y/y) and construction finance (-62.5% y/y) were lower in August.

In recent years, commercial fixed lending has been increasingly driven by lending for the purchase of plant and equipment, while subdued non-residential building and investment has provided a drag.

However, uncertainty about the outlook for the mining economy in recent months has dampened growth in plant and equipment lending. Looking through this short-term moderation, the underlying funding requirement for plant and equipment and engineering construction is expected to continue to support moderate business lending growth in the years ahead.

David Cannington is senior property analyst at ANZ.