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Growth in business and home lending is accelerating and could remain robust throughout 2025, with new data from the Reserve Bank of Australia (RBA) revealing continued strength in business credit growth. This trend could support the further development of the private credit market.
Credit growth gradually accelerated throughout 2024, contrary to many economists’ predictions of a slowdown.
According to new data from the RBA, both home and business lending are gaining strength. Business credit grew by 8.9 per cent over the year to 31 December 2024, marking the highest growth rate since May 2023, up from 8.6 per cent in November.
Investor housing credit saw a growth of 5.1 per cent in December 2024, a notable jump from 4.7 per cent in November, marking the highest growth since December 2022.
Meanwhile, for owner-occupiers, mortgage lending grew 5.7 per cent, maintaining the same rate as in November and the highest level since April 2023.
“The demand for business and housing credit is growing due to several factors. The labour market is strong, and wages are rising, which is supporting lending,” said Simon Arraj, managing director of Vado Private.
“In addition, Australian businesses have undertaken significant investment in housing construction, renewable energy projects, and transportation infrastructure such as rail and road. Such projects require substantial capital, which is often funded by corporate loans, including private credit loans.
“We are seeing a large funding gap between the credit that the big banks can provide and the growing demand for capital from corporate borrowers.”
The central bank said late last year that business credit growth had accelerated in Australia, exceeding its average since the global financial crisis. Funding conditions for Australian financial and non-financial corporations remained favourable, according to the RBA.
Arraj also highlighted the growing importance of private credit as an investment opportunity.
“Private credit can deliver investors yields of around 10 per cent per annum, which is more than double the returns on deposits rates paid by banks, which were below 4.5 per cent in December 2024, according to separate RBA data,” Arraj said.
The RBA said in a recent report that private credit “has an attractive risk-return trade-off for some investors. It pays a relatively high interest rate – generating higher returns than other similar assets such as leveraged loans – and to date has exhibited low volatility relative to publicly traded assets, like corporate bonds.”
“These are strong words from the RBA. Given such a view, many Australian investors would benefit from diversifying their portfolios into higher-yielding private debt away from cash and residential property, achieving a high risk-adjusted return on capital,” Arraj said.
[RELATED: Growth of private credit draws attention from regulators]
