The timing of a recovery in business lending remains uncertain given patchy economic growth has led to a cautious mood among business and consumers, says Westpac chairman Ted Evans.

In an update to shareholders, Mr Evans said growth was expected to remain modest and uneven with some sectors performing more strongly than others, and this would contribute to consumers and businesses remaining cautious in the near term

Despite the wariness, however, Mr Evans said the Australia economy remained in “good shape” and was being supported by robust growth across Asia.

He also zeroed in on business lending, a segment of the market that has failed to fire since the onset of the global financial crisis. Banks are relying on a recovery in business financing as housing credit reached its slowest pace in almost two decades.

Mr Evans said business and consumer confidence was expected to gradually improve through the rest of the year leading to a rise in lending growth.

“That said, the recovery is likely to be moderate in the short term, particularly as the timing of an upturn in business credit remains uncertain,” he said.

Credit figures released last week by the Reserve Bank showed average credit growth of 0.3 per cent for May, taking the annual rate of growth to 3.1 per cent. The figures showed business credit grew at 0.1 per cent during the month, taking annualised growth to minus 1.5 per cent.

Macquarie Equities analyst Craig Turton said there had been several false starts on business credit growth over the past year.

A combination of Eurozone events, weaker Chinese economic data, weaker domestic economic data and uncertainty in major policy areas in federal politics was leading to renewed caution, Mr Turton said.

“In these false starts, businesses seem to lift their interest in borrowing to invest but then find cause to hold back,” Mr Turton said.

The Reserve Bank will consider the setting for official cash rates tomorrow at its monthly board meeting. Economists have tipped the central bank will leave cash rates at 4.75 per cent, although many tipped a rate rise for later this year.

Mr Evans said Westpac was well placed in the current environment with all of the bank’s divisions in solid shape.

Despite more intense competition, the bank’s retention of customers is “excellent” while the bank is improving sales of wealth products.

“Overall, we believe the Group is in a strong position to deal with the challenges of the environment and to continue delivering quality returns for shareholders,” Mr Evans said.

ejohnston@theage.com.au

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