In its latest board meeting, the Reserve Bank of Australia (RBA) observed an increase in business insolvencies, particularly among medium-sized enterprises, though they remain below pre-pandemic levels. The Minutes of the Monetary Policy Meeting of the Reserve Bank Board revealed that business credit growth has accelerated, exceeding its average since the global financial crisis. Funding conditions for both financial and non-financial corporations in Australia remain favorable, indicating a robust economic environment.
Mr. Arraj, commenting on the RBA’s analysis, noted that this growth in business credit reflects a healthy and expanding economy, as companies actively seek funding to support their operations and capitalize on growth opportunities. He highlighted that the strong demand for business credit is driven by factors such as capital expenditures, equipment purchases, investment in technology, and business expansion into new markets. These activities, according to Arraj, are also bolstering returns on investments in private debt funds.
RBA data shows that business credit growth is significantly outpacing housing credit. As of June, seasonally adjusted housing credit grew by just 4.7% year-on-year, while personal credit, including credit card lending, increased by only 2.8%. In contrast, business credit surged by 7.8% over the same period.
Despite rising interest rates, credit quality across the Australian economy remains strong, with non-bank lenders playing a crucial role in funding business operations and growth. Stress testing of non-bank lending conducted by the RBA and published in April 2024 found that risks to financial stability from the non-bank financial institutions (NBFI) sector are contained, with riskier NBFI activities remaining modest within the Australian financial system.
The RBA also noted ongoing challenges in residential construction, including weakened new dwelling supply, cost pressures, and labor shortages. However, demand for well-designed projects in desirable locations remains strong, benefiting private credit investors who are achieving double-digit returns by financing these types of loans, according to Arraj.
