“Completely wrong”: economist’s warning against rampant borrowing, falling business loans

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He said companies are finding it harder to get credit and are more cautious given the economic uncertainty caused by the COVID-19 pandemic.

“What we’ve also seen in the corporate sector are two things. First, it has been more difficult for companies to get money out of banks – banks are asking a lot more questions given the economic environment.

Second, companies have been lukewarm when it comes to investing and using their money until we can clearly see some of this economic uncertainty.

Bagrie said the good news is that the uncertainty should resolve in the next six to twelve months and hopefully encourage companies to invest.

“We need to see that companies are investing on the right track, and one of the most important reasons for this is whether the money is coming out the door of banks and into the corporate sector.”

While business lending has taken a hit, home borrowing seems unstoppable, despite government efforts to dampen the market.

Bagrie said while investor borrowing fell slightly, owner-occupiers remained strong.

He said the Reserve Bank’s introduction of loan to value ratios (LVRs) has had mild success in deterring investors.

“The banks have applied this [LVRs] for a while and we’ve seen a small retreat from investor borrowing, but on the whole it’s still pretty much a game when you look at owner-occupier stuff. “

The government announced a series of housing changes in March to curb rampant house price growth. Changes included the ability for landlords to offset interest costs to reduce their tax liability and bring them in line with owner occupiers.

The reserve bank has also introduced credit restrictions. Only a small part of the bank loans can now go to investors with a deposit of less than 40 percent.



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