CBA’s mortgage slide meets credit surge

By Maria Irene

Commonwealth Bank of Australia (CBA), the country’s largest lender, is experiencing a historical slump in its mortgage business. For the third consecutive month, the bank has seen its mortgage book shrink, marking its first quarterly fall in more than a decade. This unprecedented loss of market share for CBA could signal a shift in Australia’s financial landscape.

While CBA’s mortgage business is on the decline, other areas of personal credit are experiencing a surprising surge. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, noted that non-housing personal credit is increasing for the first time in years. Oliver attributed this uptick to the rising interest rates, speculating that households might be grappling with mounting debts.

On the brighter side, Alex Joiner, Chief Economist at IFM Investors, pointed out that financial aggregates in Australia are stronger than expected. This is mainly due to a spike in owner-occupier credit and business credit, both contributing to household spending. In terms of numbers, business credit soared by 0.8% in September after rising by 0.7% in August. Even though the annual growth rate dipped from 7.4% to 6.8%, the monthly rate marked the strongest growth in five months.

Interestingly, personal credit also showed promising signs. It climbed by 0.6% in September after a 0.8% lift in August, and its annual growth rate leapt from 1.6% to 2.3%. According to Joiner, this is the most significant growth in personal credit seen in Australia for over a decade. The resurgence of personal credit suggests that while some households might be struggling with debt due to climbing interest rates, others are utilising credit to spur consumption and economic activity.

So, what does this all mean? Well, for CBA, the shrinking mortgage book could lead to an exhaustive review of its lending strategies and possibly a restructuring of its mortgage products. But the decline in one of Australia’s financial giants doesn’t necessarily imply an overall slump in the economy. As evident from the rise in personal and business credit, money is still circulating, but perhaps just not in the places we’re used to seeing it.

The surge in personal credit could be an indicator of two contrasting phenomena: on one hand, it shows a renewed confidence in consumption, but on the other, it reveals the burden of high-interest rates on households. As for business credit, the steady monthly growth suggests a more robust investment climate, although the slight dip in the annual rate might indicate some caution.

Australia’s financial landscape is undergoing some complex shifts. While major banks like CBA are losing their footing in traditional strongholds like mortgages, other types of credit are gaining momentum, indicating a possible reallocation of financial resources. Whether this is a temporary blip or a sign of more dramatic changes to come remains to be seen, but one thing is certain— the economic narrative is far from static.

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