Back pocket squeeze: Demand for consumer and business credit rises

Cost of living pressures are helping drive ongoing demand for credit for both consumers and businesses, according to new data.

Centrix’s latest monthly Credit Indicator report, covering August, shows credit card demand rose 13 per cent when compared with August last year.

Credit card arrears are up 10 per cent compared to last year, however they are still comparatively low against historical levels.

Demand for auto loans was 14.4 per cent higher year-on-year, while arrears edged back on a monthly basis to 5.9 per cent in August - but remain up 29 per cent year-on-year.

Personal loan arrears rose to 9.1 per cent in August and are up 24 per cent year-on-year.

Consumer arrears fell slightly to 11.62 per cent of the active credit population, down from 11.70 per cent in July. The arrears level is still 7.8 per cent higher year-on-year.

“This means we’re tracking incredibly closely to 2018 levels, but it’s important to note that despite this rise, we are coming off historic lows seen over the last few years,” Centrix managing director Keith McLaughlin said.

Meanwhile, buy now, pay later (BNPL) arrears fell for the third consecutive month to 8.2 per cent, the lowest levels seen since November 2022.

“[This] could be an encouraging sign Kiwi consumers are working to manage their debt in one of the most popular unsecured credit options available,” McLaughlin said.

Centrix managing director Keith McLaughlin.

Credit demand for businesses remained strong in August, up 3 per cent year-on-year.

Credit defaults are up 27 per cent year-on-year across all sectors, led by property/rental (+53 per cent).

The retail trade sector saw credit defaults up 36 per cent year-on-year “as the cost of living crisis continues to squeeze the wallets of Kiwi households,” the report said.

“Company liquidations are up significantly year-on-year and company closures are up this quarter, although overall volumes are low,” McLaughlin added.

There were 181 liquidations in the month of August, according to Centrix.

On a yearly basis, retail trade liquidations were 70 per cent higher, by far the biggest ahead of construction (+55 per cent).

“The remainder of 2023 will continue to be challenging for Kiwi households and businesses alike,” McLaughlin said.

“We implore those going through financial stress to seek advice and speak with their credit providers early to come up with a proactive plan sooner than later.

“If you’re considering opening a new line of credit, or are concerned about the current climate, make a habit of checking credit scores to inform any major financial decisions to reduce the chances of accruing bad debt during this time.”

Meanwhile, there are signs of mortgage holders coping with higher interest rates as the proportion of home loans in arrears fell for the third consecutive month to 1.25 per cent, down from 1.26 per cent in July.

Last week the Herald reported on mortgage lending data from the Reserve Bank which showed the property market was heating up.

Mortgage lending in August ($5.8 billion) was 6.8 per cent more than in August 2022 and it was the first time in two years that the value of new mortgage lending during the month was greater than the same month the previous year.

Similar conclusions can be drawn from Centrix’s latest data.

McLaughlin said they were continuing to see signs of a housing market pick up.

New mortgage lending is up 3 per cent from pre-pandemic August 2019, according to Centrix.

There was also a modest increase on borrowing figures from August 2022, climbing 2 per cent year-on-year, the report said.

Despite New Zealand’s inflation rate taking another tumble in the June quarter, dropping from 6.7 per cent to 6 per cent, it’s still too high and prices remain elevated, particularly for food.

Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports.