Households have ample capacity to shoulder additional debt, and this
factor, combined with high levels of employment growth and booming
business investment should sustain faster rates of growth in consumer
borrowing for another two or three years, ANZ Bank economists argued in
an investor conference call on Wednesday.

In embracing increased forecasts for credit growth over the next three
years, ANZ cited their subsidiary forecast that household income would
increase by 8% this year (a little less than twice the rate
of growth in wages) while household income would increase by 6% in each of the next two years.

ANZ provided some analysis
on the debt servicing burden of households in Australia, with
households divided into nine segments, each representing four
successive percentage points more of increased burden represented by
the debt servicing ratio.

Households with a debt servicing ratio
of 32% or more, and those with a debt servicing ratio of
between 28% and 32% – the two most highly leveraged
sub-segments – doubled between 1999 and 2004. ANZ derived its data from
analysis of unpublished household expenditure data compiled by the
Australian Bureau of Statistics.

The household sub-segments
(measured by debt burden) showing the largest rise in numbers were
those with no or trivial debt, reflecting the greying of the population
and the paydown of debt by baby boomers (presumably).

Households
with a debt servicing ratio of 32% or more – the highly
leveraged households – have combined debt in the order of $80 billion,
equal to about one eighth of all housing debt.

From the bank’s
point of view, all sub-segments with moderate to high gearing showed
plenty of growth in absolute numbers of households. The ANZ data thus
show that households have divided during the recent credit boom into
the highly geared and the lowly geared, with few in between.

Asked
by investment bank analysts on the conference call if Australia’s debt
servicing burden could double once again, ANZ’s economics team said
they did not expect this, though quickly conceded that, on their credit
growth forecasts, this might well happen.