Hospitality and retail lead loan growth
Demand for commercial credit in Australia increased slightly in the third quarter of 2024, with specific sectors turning to credit to navigate tough economic conditions, according to new data from Equifax.
The Equifax Quarterly Commercial Insights report for September 2024 showed a 0.7% year-on-year increase in commercial credit applications, driven largely by a 4.5% rise in business loan demand. The hospitality and retail sectors led this growth, with demand up 14% and 7%, respectively. However, applications for asset finance and trade credit declined, down 6.8% and 4.1% compared to the same period in 2023.
Scott Mason (pictured above), general manager of commercial and property services at Equifax, attributed the increased borrowing in hospitality and retail to seasonal preparation.
“These sectors often ramp up activity ahead of summer and the festive season, so the appetite for business loans could reflect that. However, rising credit reliance may also signal deeper financial strain,” he said.
Equifax data also highlighted rising mortgage and personal credit stress among business owners in hospitality, retail, and construction. Hospitality business owners had mortgage arrears 30% higher than those in other industries, with construction and retail owners also experiencing elevated arrears rates at 15% and 11%, respectively. Additionally, these sectors have seen significant increases in credit card and personal loan arrears since January.
The report noted a sharp 42% year-on-year increase in adverse credit events on commercial applications filed in August 2024, with hospitality businesses showing the highest likelihood of adverse credit records.
Victoria showed signs of economic stress, with a decline in overall commercial credit demand and minimal growth in business loan applications. According to Mason, Victoria and New South Wales often serve as economic indicators for other states, suggesting potential slowdowns in other regions.
Insolvency rates also surged in the third quarter, with a 43% increase year-on-year across Australia. Victoria saw the highest spike, with insolvencies up 67%, marking a four-year high for the state. While construction continued to account for the highest number of insolvencies, the hospitality sector recorded a 205% year-on-year increase in insolvencies, including a 260% rise in Victoria alone.
Overall, South Australia and the Northern Territory led growth in commercial credit demand, each up 8%, followed by Western Australia at 6%. Tasmania and the Australian Capital Territory recorded the largest declines, at 5% and 4% respectively.
Business loan applications grew 4.5% year-on-year, with South Australia and the Northern Territory again showing the largest increases, at 15% and 11%. The Australian Capital Territory, Western Australia, Queensland, New South Wales, and Victoria also saw growth, while Tasmania was the only state with a decline, down 6%.
Trade credit applications fell 4.1%, led by declines in the eastern states, while asset finance demand dropped 6.8%, with the biggest decreases seen in Victoria, New South Wales, and Tasmania. Western Australia and the Northern Territory saw modest gains in asset finance demand.
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