Credit set to slow
(4 March 2008 – Australia) Market consensus has indicated a future fall in credit and business lending flowing from banks losing the ability to raise capital.
The Australian newspaper has reported that current record business lending will slow down if the banks cannot raise the capital to provide lending facilities.
While investment bank JPMorgan proclaimed the onset of credit rationing for the first time since 1998, official business lending figures indicate a 20 year high in annual business credit growth, to 24.4 percent. These figures, however, current only go to January 2008.
The main problem is that for these growth figures to continue, banks will need to raise more capital, which is difficult in current market conditions.
National Australia Bank chief executive John Stewart commented that, at present, credit was accessible but more costly. He indicated that in the future, the market could reach a point where credit will just not be available.
Paul Dowling, principal of East & Partners, said Mr Stewart's commentary suggested a recognition of price-controlled credit rationing. He said that that's not true rationing; it's more about margin improvement.
Demand is also increasing for business lending from banks because capital markets such as the securitisations market have effectively closed due to the current liquidity crisis.
While investment bank JPMorgan proclaimed the onset of credit rationing for the first time since 1998, official business lending figures indicate a 20 year high in annual business credit growth, to 24.4 percent. These figures, however, current only go to January 2008.
The main problem is that for these growth figures to continue, banks will need to raise more capital, which is difficult in current market conditions.
National Australia Bank chief executive John Stewart commented that, at present, credit was accessible but more costly. He indicated that in the future, the market could reach a point where credit will just not be available.
Paul Dowling, principal of East & Partners, said Mr Stewart's commentary suggested a recognition of price-controlled credit rationing. He said that that's not true rationing; it's more about margin improvement.
Demand is also increasing for business lending from banks because capital markets such as the securitisations market have effectively closed due to the current liquidity crisis.
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