Business loan demand slowing

Growth in demand for credit among business is slowing down.

All major banks experienced a period of dramatic growth in business credit over the last few months of 2007 and this continued in very early 2008, as large companies sought funding from banks to replace credit previously available from the sale of debt in their own name through the capital market.

At an investor briefing yesterday Mike Smith, managing director of ANZ, said "what we've seen subsequently is that demand has slowed.

"Corporations have been delaying investment opportunities, putting on hold expansion plans, waiting to see what happens in the world economy, which I think is probably very sensible and prudent.

"So we are seeing a reduction in loan demand right now."

ANZ provided no further data on this slowdown.

RBA credit data for February, published at the beginning of last week, showed a rise in business credit of only 0.5 per cent. Complementary data from APRA suggested a sharp slow down in the level of lending businesses in the three months to February.

What this tends to reinforce is that the Reserve Bank credit aggregates captured a surge in bank lending that merely replaced other lending, and, ideally, would have been part of the data collection already.

In other words the aggregate data on business lending growth (at unusually high rates of 26 per cent on a 12-month basis) was exaggerated in recent months, and so an understanding of the actual growth in demand for business credit over this period isn't really available.