Guest blogger Mike Ebstein, from MWE Consulting, looks at Australian household debt and lending.
Australians have generally been level headed when it comes to the use of credit cards. There will always be some examples of rash purchasing behaviour but despite very large growth in the use of credit cards over the last 20 years, the great majority of card use has been well managed.
We have seen total credit and charge card purchases increase from $16.0 billion in 1993 to $130.3 billion in 2003 and to a projected $260 billion in 2013. As card use progressively penetrated new areas such as supermarkets, bill payments and eCommerce over that period, some commentators expressed concern about the role of credit cards as a payment option. A retrospective look at household debt and card use provides comfort that those concerns were not warranted.
Between 2003 and 2008, total consumer lending increased by 87.7 percent from $573.9 billion to $1,106.9 billion. But in the following five years from 2008 to 2013, that growth slowed to 28.9 percent with lending going from $1,106.9 billion to $1,426.8 billion.
A change apparent over the past decade has been the reduction in personal finance as a share of overall household lending. From 15.2 percent in 2003, the figure declined to 13.9 percent in 2008 and now is down to 9.5 percent. This means that when we look at the overall borrowings of households, housing finance occupies the dominant space with a 90.5 percent share.
When we look at bank lending in isolation, we see a similar decline in the share of overall household lending on personal debt as housing debt assumed a progressively greater share of the total. Within the personal debt portfolio, there were a number of changes occurring. Fixed loans in 2013 had become less popular whilst revolving credit (with credit cards in particular) have gained share.
Whilst credit cards have strengthened their share of bank personal lending, as a proportion of total bank household lending, credit cards have lost some share. The latest data shows that credit card balances dropped slightly from 5.49 percent of total bank household lending in the 12 months to June 2003, to 5.29 percent in the 12 months to June 2008 to 3.9 percent in the 12 months to June 2013. This decline in share has not resulted from a slide in card use, but rather as a consequence of a prudential approach by cardholders to debt.
In the last 20 years when credit card purchases increased by a factor of 16.2, total average annual balances rose by a much more modest factor of 10.5. If we recognise the revolve rate to exclude those balances that are not accruing interest, it is apparent that whilst credit cards account for a huge $260 billion in annual purchases, they constitute a relatively small portion of bank household lending:
Credit Card Balances Accruing Interest as a Share of Bank Household Lending
12 months to June 2003 5.49% share x 71.0% revolve rate = 3.90% share
12 months to June 2008 5.29% share x 72.0% revolve rate = 3.81% share
12 months to June 2013 3.92% share x 72.1% revolve rate = 2.83% share
The days of 30%+ growth in value of purchases are well past, but the increased use of credit cards as a replacement for cash and as a payment option for online purchases are maintaining positive and steady ongoing growth in credit card spend. However, that growth in spend is now being accompanied by balances that are being largely prudently managed by cardholders as they remain wary of debt.
RBA D2 Lending & Credit Aggregates
RBA D5 Bank Lending Classified by Sector
RBA C1 Credit & Charge Card Statistics
Mark Ebstein is Director at MWE Consulting, a specialist service provider in card payment products and associated reward and loyalty schemes.
Posted by: Visa Corporate Relations Team on September 6, 2013 at 10:34 am