Photo: RNZ
Consumers and businesses look to be getting their debt levels under control, while an increase in credit demand points to an emerging economic recovery.
Credit agency Centrix's September monthly report showed a marginal fall in the number in arrears to 465,000, about 12 percent of all borrowers, from 468,000 the month before, although the number of arrears of 90 days or more rose slightly.
Managing director Keith McLaughlin said arrears were still twice pre-pandemic levels, and many people were still having to prioritise which bills to pay first each month, but conditions seemed to be improving.
"While some sectors and regions continue to face challenges, the overall improvement in credit demand, arrears, and business defaults is a good step towards confidence gradually returning to New Zealand's households and businesses," he said.
"The continued decline in the Official Cash Rate (OCR) is beginning to reshape New Zealand's credit landscape, providing a much-needed boost to both households and businesses."
Credit demand up
McLaughlin said the rise in demand for credit was not because consumers were borrowing to make ends meet, but a sign of confidence about the future.
"Kiwis don't borrow money if they don't think they can pay it back."
New household lending increased by 20.2 percent in the September year, and business credit demand rose 3.5 percent.
Mortgage lending was up 21 percent as households refixed at lower rates, while consumer credit demand was up more than 5 percent with strong growth in personal loans and buy-now-pay-later, as well vehicle and credit cards.
McLaughlin said higher consumer confidence was helping businesses recover.
"Encouragingly, business credit defaults are down 13 percent compared to last year."
Credit demand was strongest in the hospitality sector, up 31 percent over the past 12 months, followed by education/training, and retail trade, but demand fell in the transport and construction industries.
The number of business liquidations was stabilising in seven of the 19 industry sectors surveyed, but construction firm liquidations had risen by nearly a quarter over the past year.
McLaughlin said the worst was now behind the construction industry, with those surviving now "fit for purpose".
North/South divide
McLaughlin said the recovery was showing a clear North and South Island divide.
"The South Island shows strong credit improvement, driven by lower arrears and renewed lending growth," he said.
"Dairy farming confidence is high, construction outlook is improving, and hospitality trading performance is holding up well."
McLaughlin said much of the upper North Island was showing moderate recovery, led by agriculture activity in the rural areas, and construction pipelines picking up elsewhere.
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