Finance CONSUMER credit growth is slowing faster than expected in Australia as the next phase of the global credit squeeze begins, triggering new doubts about Australia's retail banks
     The fears follow poor global profit results released by credit-card giant American Express, which warned that wealthy consumers were slowing their spending, confirming that the corporate credit crisis has spread to the consumer sector
     Bank funding costs have increased due to continuing tight credit markets, and the rising cost of living is weighing on the confidence of consumers and businesses
     "NAB's funding costs have increased after the credit rout with NAB continuing to absorb some of the cost increases," National Australia Bank spokeswoman Kerrina Lawrence said
     "NAB, like other banks and financial institutions, has changed its rates to reflect the higher cost of funds. NAB has also factored in additional risk and has priced its products accordingly." Figures released by the Reserve Bank of Australia show that annualised credit growth has slowed across the broad categories of business and consumer lending
     In the "personal other" category, which includes credit cards and personal loans, annualised growth almost halved from 16.2 per cent in May 2007 to 8.8 per cent in May this year
     Locally, a new report by analysts at Citigroup warned that the consumer credit squeeze was hitting harder than expected and would affect share prices across the sector
     "With little respite in growth, housing credit growth is clearly headed below 10 per cent, the first time it has done so since the late 1980s," Citi analyst Craig Williams said
     The upshot of the growth downturn is a reduction in earnings margins for banks
     Citi has cut earnings per share estimates for the major banks by up to 12 per cent and put a sell recommendation on NAB and the ANZ
     "A vicious cycle of tight capital, slowing lending growth and rising defaults introduces multiple challenges for banks globally, from which the global banks will not be immune," Mr Williams said
     Broad fears of a further slowdown in consumer credit were triggered in the US on Monday night, when American Express unveiled a dramatic 38 per cent fall in profits
     The group said the outlook has weakened "significantly" since the last forecast in January, as the impact of the US housing crisis spilled over to credit card payments, including cardholders in a Continued -- Page 28 From Page 27 category known as "superprime"
     Australian banks were all hit. The worst was ANZ, which slipped 3.88 per cent or 73c to $18.07, after a week that generally saw strong share price growth
     "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," Amex chairman and chief executive Kenneth Chenault said
     "Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations
     "In light of the weakening economy, we are no longer tracking to our prior forecast of 4 to 6 per cent earnings per share growth
     "The scope of the economic fallout was evident even among our longer-term, superprime card members." American Express Australia refused to hand out any information on its business here but Amex has issued 86.4 million credit cards globally, including 34.1 million outside the US
     Amex Australia spokesman Todd Beavis revealed that the company, like other card issuers, has jacked up interest rates on its credit cards by as much as 2.5 per cent in the past 12 months
     "We have been forced to increase our interest rates over the last 12 months because, like many financial institutions, the continuing global credit squeeze has significantly increased the cost of sourcing funds," Mr Beavis said
     Westpac spokeswoman Jane Counsel said that while credit card volumes were steady, the number of cards in the market was down slightly
     "This reflects that we have pursued a conservative risk profile," Ms Counsel said
     Wall Street Journal -- Page 31


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