2013 fall in consumer and commercial credit demand

2013 fall in consumer and commercial credit demand has implications for wider economy

Media Release 19 April 2013

Statistics from New Zealand’s leading credit bureau show consumers have backed off a pre-Christmas demand for credit returning to a far more cautious approach to managing their debt.

Veda New Zealand Managing Director John Roberts says while New Zealanders have become savvier with their money since the Global Finance Crisis the degree of caution exercised by consumers and the commercial sector in the first three months of 2013 is a disturbing signal for the wider economy.

“This renewed sense of caution is worrying in the bigger picture as it could reflect a slowdown in retail and commercial markets with the inevitable negative impact on economic recovery.”

Consumer caution is illustrated by the growth in mortgage enquiries with data showing that home owners are shopping around for the best interest rate and are not locking themselves into a fixed rate for long periods of time. For March mortgage inquiries increased by 20 percent compared to the same month last year.

“Banks are agressively promoting lower interest rates and customers are now only fixing mortgage plans for 12 months so they can go back to the market at renewal time with the aim of getting an even more competitive rate,” Mr Roberts says.

Another area demonstrating this debt-savvy behaviour is the growth in Personal Loan applications and the decrease in credit card applications. Many people are consolidating their debt by drawing a number of different loans including credit cards together into one new loan which collectively has a lower interest rate than the independent loans. Personal loans grew by 42 percent in March compared to March 2012. This growth was led by Generation Y. (Generation Y is 28 years of age and younger, Generation X is aged 28-43 while the Baby Boomer Generation is aged 44-62 years of age.)

Veda data also shows default information listed on individual credit files down 13 percent for the month of March year-on-year, with the largest decrease amongst Baby Boomers. This is in contrast to the months and years directly following the GFC in which Baby Boomers recorded the largest number of defaults.

In the commercial sector, small and medium size enterprises (SMEs) are still credit shy with enquiries decreasing for the month of March by 10 percent. Defaults fell by two percent.

Trade payments, although increasing in total outstanding debt, are reducing in actual payment days. In 2011 business were waiting, on average, 40 days to be paid. That fell to 39 days in 2012 and in March 2013 the average wait-time for payment was 38 days.

Mr Roberts says all trends point to a more conservative approach to credit
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