Australia | Feb 08 2010
By Chris Shaw
The Australian economy has not been immune to the downturn stemming from the global financial crisis but analysis by business intelligence provider Datamonitor has shown the Australian personal loan market has remained quite resilient.
Its study shows new lending has held firm and loan defaults have remained below anticipated levels, something that has allowed the major banks to benefit from both an increase in market share and in margins.
While vehicle loans fell in 2009, Datamonitor financial services senior analyst Petter Ingemarsson notes new lending was propped up by refinancings as people attempted to take advantage of lower levels of interest rates.
As well, Ingemarsson notes the volume of new personal loans has also been quite stable, as at September of last year personal finance commitments totalled $6.9 billion, up from the $6.3 billion total in September 2008.
This result is somewhat surprising as Ingemarsson notes it was achieved despite a recent survey by Datamonitor finding 36% of those with personal loans either agree or agree strongly they are currently experiencing financial stress.
What the crisis has done is change the type of loans being taken out, the survey showing a continued decline in vehicle loans to just 22% of fixed loans as at September of last year. Loans for refinancing grew as interest rates declined by 4.25% between August 2008 and April of 2009, with average bank mortgage rates falling by 380 basis points and average standard credit card rates falling by 210 basis points in that period
What didn’t fall to the same extent was the rate on personal loans, Ingemarsson suggesting this was because personal loans are less politically sensitive given they are generally for more discretionary products and for a lesser value. This implies there is less pressure on the banks to cut such rates by as much as they have changed rates on home loans.
The other impact of the financial crisis has been to raise concerns about general economic conditions and in particular the outlook for employment, which Ingemarsson notes has generated an increased rate of repayment on personal loans. This is evidenced in the fact outstanding personal credit in Australia fell to $137 billion in the middle of 2009 from $155 billion in the middle of 2008.
The big winners of all this in Ingemarsson’s view have been the major banks. Datamonitor estimates from a 52.9% share of new fixed loans in January of 2000 the major banks’ market share of this sector has increased to 82.5% in September of last year.
The increase reflects market share gains from building societies and credit unions as banks have been successful in cross-selling personal loans to existing customers. As well, Ingemarsson points out non-bank competitors have struggled thanks to increased funding pressures as the financial crisis has played itself out in credit markets.