Australian Lending Declines for First Time Since 1992

By Jacob Greber

Jan. 30 (Bloomberg) -- Australian bank lending unexpectedly fell in December for the first time since 1992 as borrowing by companies slumped, increasing pressure on the central bank to cut interest rates next week.

Total credit provided by banks and other finance companies declined 0.3 percent from the previous month, the Reserve Bank of Australia said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a 0.5 percent gain.

Miners BHP Billiton Ltd. and Rio Tinto Group are among companies that have cut investment spending and fired workers, adding to signs Australia’s economy is headed for its first recession in almost two decades. Central bank Governor Glenn Stevens has slashed borrowing costs by three percentage points since early September and will cut the benchmark rate by one point next week, according to investors.

“We hadn’t expected such a big slump in business lending,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “Investment plans are being scaled back and postponed given expectations for weaker global growth.

“This gives the Reserve Bank more scope to cut rates aggressively” next week, Kevans added.

Lending to businesses shrank 1.1 percent in December, the biggest drop since that month in 1992, according to data on the central bank’s Web site. Corporate borrowing rose 8 percent from a year earlier.

The Australian dollar fell to 64.63 U.S. cents at 12:06 p.m. in Sydney from 64.81 cents just before the report was released. The two-year government bond yield dropped 5 basis points to 2.43 percent. A basis point is 0.01 percentage point.

Reluctant to Borrow

Total credit rose 6.7 percent in December from a year earlier, the smallest annual increase since April 1994.

“People are reluctant to take on additional credit,” said JPMorgan’s Kevans. “A lot of households are boosting precautionary savings rather than taking on extra loans.”

Credit provided to consumers for purchases other than housing tumbled 1.1 percent from a month earlier and fell 5.2 percent on the year, today’s report showed.

Loans to consumers to buy houses rose 0.4 percent for an annual gain of 7.6 percent.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net