Friday, 22 March 2019

Is there a credit squeeze?

This is from the latest ANZ business survey, and it worried me. If businesses are finding it hard to get finance in good times - and we're still in what is now a sustained eight year long expansion - what on earth are their prospects of getting credit in bad times?

It could of course be that they're just venting, in the way that surveyed 'business confidence' has a fair degree of politics in it, although it's not obvious what extraneous factor could drive such a large and prolonged fall in the expected ease of credit.

As it happens, there is another window into credit availability, though it's not the easiest to peer through. The Reserve Bank's credit conditions survey, in its current form, is run only six-monthly, and so far covers only March and September 2018, so it's not yet the full monty. There was a longer-running 'experimental' one which goes back to 2009, but it's not possible to align the old and new ones perfectly: the Bank says that "The mapping of historical indicators to the current set of indicators ... is imperfect". But I've done it anyway just to get some sort of longer-run feel.

Here's what the banks say about the recent availability of credit to SMEs and to the big end of town, the corporates and institutions. You can see the unfreezing of credit after the GFC, a rather mysterious temporary pullback in SME lending in 2013-14, and more recently a progressively tighter approach (barring that uptick in corporate credit on the latest reading, which may be a blip).

Strictly speaking the ANZ survey asks about expected rather than historical availability of credit, but fortunately the RBNZ survey also asks the same question. Here's what the credit suppliers answered when asked.

Assuming that zero on the index is neither happy nor unhappy, they're saying, essentially, that they're slightly on the relaxed side of lukewarm about extending business credit in coming months. They're not outright gung-ho, but they're not shuttering up the shop, either.

So there's not a great meeting of the minds at the moment between the businesses who respond to the ANZ survey and the banks who respond to the RBNZ's. Maybe the businesses are griping more loudly about extra documentation and hoops to jump through, but are actually getting the credit in the end, despite all the hassle along the way. Let's hope there isn't any genuine blockage in the flow of funds to businesses wanting to invest: the cyclical outlook is getting a bit more fragile, and it doesn't need any more headwinds.

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