Major banks are continuing to report a slide in business credit activity since the COVID-19 pandemic paralysed key sectors of the economy in April.
The latest monthly data published by APRA confirms that the banking sector’s business exposures tumbled further in July, as corporate and SME confidence plumbed new lows.
On April 30 business borrowers (excluding financial institutions) accounted for A$563.9 billion worth of loans on the books of the four major banks, but that dropped to $553.8 billion at the end of July.
Senior economists attribute the system-wide decline to a sharp slide in demand from borrowers, following an unusually large increase in drawdowns in March.
“I don’t think this is a case of the banks tightening on lending,” said the University of Tasmania’s Saul Eslake.
“We saw many companies in March moving to activate undrawn credit lines because they were fearful they would not have sufficient cashflow to meet expenses during the first lockdown.
“A lot of that money was immediately placed in deposit accounts and in the last three months it was used to pay back the banks because most it was not needed to cover cashflow deficiencies.”
However, independent economist Stephen Koukoulas believes that if lending activity does not recover in coming months it could constrain an economic recovery.
“I suspect the decline in loans outstanding is due at least in part to a business sector that has become risk averse and reluctant to borrow,” said Koukoulas.
“From an economic perspective it doesn’t matter what the cause is because it’s not good news for a near-term recovery.
“Historically in Australia there’s an undeniable correlation between economic growth and changes in business credit activity.”
Westpac economist Andrew Hanlan warned that sliding demand for business credit was likely to persist.
“With the onset of the pandemic, businesses are in survival mode,” he said in a research report.
“This is the start of a trend and is broadly consistent with the experience of past recessions and sharp downturns.”
The runoff in loans outstanding since April means that the big increase recorded in March has been erased for three of the major banks – National Australia Bank, Westpac and ANZ.
NAB has seen its business lending pared by $3.2 billion to $172 billion in the three months to the end of July.
Westpac crunched its business book by $3 billion to $129.6 billion in the same period.
ANZ, which reined in business lending moderately in May and June, had more than $2 billion wiped from its book in July.
It now has $117 billion lent out to non-financial companies – down $3 billion since the end of April.
The runoff at Commonwealth Bank has been less severe.
CBA now has $135.2 billion lent out to business borrowers – a fall of $900 million in the last three months.