New personal loans see the biggest fall in nearly 20 years

New personal lending nosedived by about 25 per cent in April, the biggest recorded monthly fall by the Australian Bureau of Statistics (ABS) in nearly 20 years.

New personal loan commitments totalled $1.25 billion in April, falling from $1.66 billion the month prior. A lender-approved loan which has been accepted by the borrower is considered a loan commitment by the ABS.

Long-term declines in personal lending is also beginning to crystallise, with the value of new personal loans plunging by 23.9 per cent in the 12 months to April 2020.

ABS chief economist Bruce Hockman attributed the drop to a significant decline in vehicle loans.

“This was the largest fall in the history of the series, which started in July 2002, and was driven by a 37.8 per cent fall (in April) in the value of loan commitments for road vehicles,” he said.

“Lending institutions reported that COVID-19 impacts were being seen through both reduced demand from borrowers and tighter lending criteria.”

What people borrow money for during COVID-19

Road vehicle loans declined by about 39 per cent to $625 million in the 12 months to April 2020.

Meanwhile, loans for travel and holidays plummeted by 95 per cent to just $2.2 million in the same period. While COVID-19 restrictions have eased for some regional travel, overall travel has been limited with some state borders yet to open and unnecessary overseas travel remaining banned.

The only category of personal lending that saw a spike was loans for personal investment other than housing, which may include shares and physical commodities like gold.

Loans for personal investment recorded a monthly growth of 54 per cent to $250 million in April while surging by 75 per cent in the 12 months to April 2020.

The data comes as a new Australian Securities and Investments Commission (ASIC) paper showed new mum-and-dad investors have been flooding the share market during the COVID-19 period. The rate of new account creations ballooned by 3.4 times in that period, compared with the six months to February 21, the beginning of the volatile period, according to ASIC.

Notably, more than one in five of all active accounts during the volatile period were new accounts. In the previous six-month period, new accounts comprised 3.65 per cent of all active accounts.

Source: ABS.

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Overall personal credit, which includes personal loans and credit cards, dropped by 3 per cent in April to $159 billion, according to data from the Reserve Bank of Australia (RBA). The decline over the year was more than 9 per cent.

This aligns with a new Westpac-Melbourne Institute survey showing Australians are becoming more risk-averse and prioritising safe options when choosing where to park their money. Two thirds of consumers opted to put their savings in deposits, superannuation or to pay down their debt, the survey showed.

Despite the aversion to risk, consumer confidence in the country has almost restored to pre-COVID levels. The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 6.3 per cent to 93.7 in June, clawing back the “extreme” 20 per cent drop during the peak of the pandemic in March and April.

“Confidence has clearly been buoyed by Australia’s continued success in bringing the coronavirus under control, which has in turn allowed for a further easing in social restrictions over the last month,” Westpac chief economist Bill Evans wrote.

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