Inquiries on credit support recovery

By Brian Fallow

WELLINGTON -- Robust growth in credit inquiries to Baycorp provides fresh evidence that the consumption-led recovery got its second wind in the September quarter.

Paul Stewart, the former ANZ Bank chief economist now with Baycorp, said the news that the economy contracted in the June quarter had spooked some people and raised doubts about the sustainability of growth in domestic activity.

But the volume of inquiries to Baynet CRA about applicants for retail and consumer finance, such as hire purchase, picked up significantly last month. For the September quarter, inquiries were up 5 per cent on the June quarter. That is consistent with official retail sales statistics which showed stronger results for July and August after a weak June quarter.

"Mortgage finance inquiries show a similar picture," Mr Stewart said.

"Further steady growth, building on the pick-up evident early in the year."

However, motor vehicle finance inquiries have declined by 25 per cent over the September quarter.

The strong recovery in sales which followed the removal of tariffs on imported cars in May last year has been tailing off since June, with a particularly sharp (20 per cent) fall in credit inquiries last month.

Over the past six months almost one million credit inquiries were made to Baynet's consumer database and in 22.8 per cent of cases produced an adverse report, signifying that the applicant had defaulted on some previous credit arrangement. Mr Stewart said that ratio was high by international standards and rising. In the first half of last year the ratio was 19.8 per cent.

"It doesn't of course mean that 23 per cent of New Zealand have failed to meet all their obligations in the past, just 23 per cent of those inquired about."

He said the high rate of adverse reports compared with other countries could partly be explained by the comprehensiveness of the database.

It was supported by virtually all the major credit providers as well as Baycorp's own debt collection activities.