Borrowing and saving: Businesses are slowly picking up speed

The level of business savings in Australia continues to rise, with deposits from non-financial institutions rising by $72 billion dollars over the past three years, to sit at an historic high of just over $400 billion. It is a worldwide phenomenon with a myriad of reasons including tighter budgets, an increased preference for liquidity, an uncertain economic outlook and subdued investment opportunities. When conditions are tough, businesses find ways to put money aside for a rainy day.

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As demonstrated above, both business loans and deposits were rising at steady rates in the lead-up to the GFC, however as the crisis hit in late 2008 there was a distinct downturn in loan volumes. Businesses were scrambling to pay down debt and reduce their exposure to the fluctuating loans market. At the same time, they began stockpiling cash.

These two activities, roughly in conjunction with each other, led to a halving in the margin between saving and loan levels and in early 2011 this margin reached its narrowest point, to sit just below $63 billion.

Since then, and despite a few hiccups along the way, it would seem that an appetite for business lending has cautiously returned in Australia. While the margin currently at $94 billion is still well below its peak, it continues to grow, with lower interest rates most likely encouraging investment borrowing. Business confidence is still low, though, so it remains to be seen whether the borrowing and saving margin will continue to widen, or will contract again in the short term. Only time – and economic developments – will tell.