Figures out today from the Australian Bureau of Statistics confirm that business lending continues to contract, personal finance is weak and housing is booming by comparison.
They’re figures that shine an interesting light on the CBA’s move to lift it’s variable housing rate slightly at the end of last week.
Going on the ABS’ numbers, there has been a 12.9% plunge in commercial finance in the month, which is as big a contraction as we have seen.
The dollar figures are even more amazing: down from $31.086 billion in March, seasonally adjusted, to $27.06 billion in April. That’s a $4 billion contraction, according to the ABS.
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That figure jumps around a lot and there’s some element of loans rolling over, but it’s a sign of how quiet demand from business is at the moment.
The fall in commercial finance overshadowed a $300 million rise in the seasonally adjusted figure for housing from $15.750 billion in March to $16.050 billion in April. Personal finance rose a derisory $10 million to a seasonally adjusted $6.270 billion, so it remains subdued, despite the strength in April in sharemarkets.
The lending finance figures therefore make something of a mockery of the reaction to the Commonwealth Bank’s 0.10% rise in its variable home loan rates and increases to its fixed lending rates.
If the Bank had wanted to remove itself from having the cheapest loan it would have lifted rates by around 0.20% or even 0.25%. The 0.10% was a try on, to see what the level of criticism would be.
The real area of attack on the CBA from the media and from some politicians should have been a lack of confidence in competition, especially price competition.
Everybody is “furious” and “upset” at the “selfish” Commonwealth Bank for putting its variable housing rate up 0.10% on Friday (which applies from today).
Julia Gillard was “furious” on behalf of the Government yesterday; Wayne Swan on Friday said the CBA was “selfish”. Julian McGuran, an Opposition senator, said the banks should lose the Federal Government guarantee. Other Liberals said it was the Rudd Government’s debt burden “what done it”.
And yet all this confected rage has missed the point. Far from being “selfish” the CBA is running scared of competition. It has finally blinked and changed its rate after having the lowest home loan rates for three months or so.
It still says it has the lowest home rate, but its no longer as noticeable.
Rather than leave them there and cut costs (or rake a crimped interest margin) and advertise that this to the world (every little bit helps), the bank’s managers have lost their nerve and lifted the rates to bring them into rough parity with its peers, Westpac, the ANZ and NAB.
Home lending is increasing, so thinking seems to have been: lift rates to see what the reaction is, so we can make up some of the revenue lost in the downturn in business lending, and the rise in bad debts.
The lower rate came from the bank’s cut after the April rate cut of 0.25% by the RBA (which brought the cash rate back to 3%). It could have left the small discount there and used it cleverly.
But it’s clear that the CBA management sees safety in the pack with its “competitors” who with the CBA, control around 92% of all home lending at the moment. The CBA and its competitors had lifted their interest margins in the six months to December and to the end of March (the latest reporting periods).
Home lending will continue to be the only growth part of the banking game for the rest of this year. Get it while you can! Time to lift fees, perhaps?