Fall in lending to businesses continues

Commitments to lend to businesses fell by 14.7 per cent to a 42-month low in February.

The seasonally adjusted figures from the Australian Bureau of Statistics on Tuesday confirm the downtrend which began with a steep slide in the early months of last year.

At $25.1 billion in February, commitments were down by 43.4 per cent or $19.2 billion per month from a year before.

The weakness in business lending was compounded by a marginal 0.2 per cent fall in personal finance commitments, which in February were down by 11.5 per cent or $840 million per month from February 2008.

The was some offsetting strength in secured lending for home purchases or additions, which rose by 2.8 per cent in February.

Overall though, finance commitments were down by 7.7 per cent in February, at their lowest since October 2005.

Although some of the reduction in lending can be ascribed to weakness in demand as households and businesses pulled in their horns, some can be put down to tighter lending criteria being applied by lenders.

The NAB's monthly business survey reported 26 per cent of respondents reported tougher availability of credit in February.

The March survey, released on Tuesday, showed that proportion fell to 18 per cent in March, so things may be improving, but for the time being the fall in lending commitments indicates the economy is still struggling to make headway.