Consumer credit slowdown "faster than expected"

The growth in consumer credit is declining at a "faster than expected" pace as the corporate credit crunch spreads to personal finances, a new report has claimed.

The figures from the Reserve Bank of Australia (RBA) show annual growth in forms of personal borrowing such as credit cards and personal loans has declined from 16.2 per cent in May 2007 to 8.8 per cent in the same month this year, the Australian said.

Part of this contraction is down to the higher cost of living, which has hit consumer confidence and spending, the site added.

It is also being driven by the higher cost of borrowing caused by interest rate increases and the difficulty in securing borrowing from banks, who themselves face tighter credit markets.

Craig Williams, an analyst with Citigroup, said this hits banks' profits, which further restricts the market, ultimately creating a "vicious cycle" of tightening capital, slower growth in lending and increases in the number of defaulting loans.

In an increasingly global economy, banks and consumers also feel the ripple effects from economic turbulence overseas - particularly in the US, the site said.

Indeed, concerns over a worsening slowdown in consumer credit were sparked Stateside by results from American Express (Amex) showing a "dramatic" 38 per cent decline in the credit card provider's profits, it added.

Shares in all Australian banks were hit by the news, the publication noted, with ANZ suffering the most - its shares slumped by 3.88 per cent.

Amex chairman and chief executive Kenneth Chenault said: "Fallout from a weaker US economy accelerated during June with consumer confidence dropping, unemployment rates moving sharply higher and home prices declining at the fastest rate in decades."

Statistics from the RBA put total charge and credit card spending at $18.26 million in May 2008.

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