Developments in Credit Markets over Two Decades. (Articles)

By Thorp, Clive | The Reserve Bank of New Zealand Bulletin, June 2002 | Go to article overview

Developments in Credit Markets over Two Decades. (Articles)


Thorp, Clive, The Reserve Bank of New Zealand Bulletin


Following financial market deregulation in the mid-eighties, the relative importance of sources of credit for the household, agriculture and business sectors changed markedly. This article examines the changing shape of the credit market for each sector since 1980, with a special focus on credit for agriculture. Changes in the relative size of these three main credit markets are traced from the time of deregulation, showing how fast credit to each sector has grown and the impact of their credit demands on the growth of private sector overseas debt to 2000.

1 Introduction

This article examines by sector the changing sources of and demand for credit since 1980, and links aspects of these changes to New Zealand's private sector overseas debt. It first updates the long-run series of household financial assets and liabilities introduced two years ago in the Bulletin (1) and provides a more detailed breakdown of the long-term financial asset series. Secondly, a twenty year agriculture credit series is presented, combining for the first time data from several sources to establish a long-term credit growth path for a sector of the economy currently increasing its borrowing at one of the fastest rates it has ever experienced. Next, business sector borrowing from domestic sources is derived as the residual from these two series. The evolution of credit demand from these three sectors is illustrated in aggregate, and through the changing institutional structure that has provided the funds. The term 'credit' is used to cover comprehensively all forms of debt of these sectors: loans, secu rities issued and any other non-equity instruments.

2 Household financial assets and liabilities

Household credit, in New Zealand and elsewhere, is perhaps the most widely discussed of the three major private credit sectors, and has been the subject of two previous Bulletin articles (2) in this series, in conjunction with household financial assets and net wealth. In this article we focus principally on household liabilities, but comment briefly on household assets. The long-run series, first introduced two years ago, have been extended another year to December 2001. (3) These series also now cover household financial asset and credit data more comprehensively. A new annual survey of managed funds has boosted measured household financial assets in managed funds by 8 per cent, and improved data are available on non-institutional financial assets.

An overview of household financial assets and liabilities is provided in table 1. The additional data from the new annual survey of managed funds and better information on fixed interest investments have caused an upwards revision in measured financial assets by around $5 billion over the level published last year for 2000 (data have been backdated). Household financial assets grew in aggregate around 4 per cent over 2001, with the percentage ratio to disposable income remaining relatively constant. The principal feature of New Zealand's household financial asset data compared to many other OECD countries is its low ratio to disposable income, and its relatively slow growth over the past decade. By contrast, the level of the ratio of housing values to household disposable income is more in line with those of other countries.

Total household debt grew relatively slowly again in 2001, and in ratio terms is only marginally above the 114 per cent level at the end of 1999. Until then, the ratio of financial liabilities to household disposable income in New Zealand had risen very strongly for fifteen years, catching up to levels the more indebted OECD household sectors had been at for a decade. Since 1999, the growth of household borrowing has slowed significantly. This performance contrasts with some other countries, such as the UK and Australia, where the household debt ratio has continued to grow over recent years. However, the downward trend in the net financial wealth ratio in New Zealand has continued. …

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