activity. since the global financial crisis, the availability of credit has tightened significantly around the globe. the rate of growth of credit in most advanced economies is currently close to zero, or even negative ( graph 5 ). graph 5 australia has not been immune from these developments, though credit growth has held up better here than in other countries. we should not be surprised that credit growth has slowed, as this is typically what happens after a financial crisis. in the boom years that precede a crisis, credit expands very strongly as businesses or households ( or both ) gear up, either to fund spending or asset acquisition. some of the decisions that people make during those periods are based on unrealistic expectations about future economic conditions or asset prices. as such, they turn out not to be financially viable. a process of de - leveraging therefore follows. businesses and households become more cautious, increasing saving, selling assets and reducing debt. lenders also become more cautious, both because they see the weaker economic circumstances as increasing the risk on loans, particularly as collateral values decline, and because they typically begin to experience a noticeable increase in bad loans. the result is that both the demand for, and the supply of, credit tend to decline. the authorities typically take steps to counter these forces, through tightening in the upswing and then easier economic policies in the downswing, and sometimes through direct fiscal assistance to lenders to help them sustain the supply of credit. however, it would be unrealistic to expect that these measures can entirely smooth out the credit cycle, just as it would be unrealistic to expect that the authorities can eliminate the cycle in equity markets. these cycles are inherent in human behaviour. history shows that it takes time for households, businesses and lenders to regain confidence after a financial crisis, and there are limits on the extent to which economic policy measures can accelerate the process. this is a very significant issue in many developed countries at present. here in australia, the credit cycle was mild compared with overseas experience, but nonetheless there was a cycle. credit, particularly to businesses, increased relatively quickly for a number of years, and now the downside of that cycle is currently being played out. in the period since the mid 1980s, there have been three broad expansion phases in credit in australia : two related to business credit and one to household credit. the first of the cycles in business credit began in the mid 1980s when financial deregulation led to a strong expansion in credit to businesses.

lending on which defaults can rise quickly. the reserve bank monitors lending to the property sector very closely, because it has important implications for both the performance of the economy and the stability of the financial system. lending to the commercial property sector began to pick up noticeably from around 2004 onwards, and at its peak just before the global financial crisis was growing by 27 per cent per year ( graph 11 ). foreign - owned banks were the lenders with the fastest growth through this period ( graph 12 ). graph 11 graph 12 with lending for commercial property growing significantly faster than other business lending, its share of total business lending increased from about one - quarter to around one - third. for the regional banks and foreign - owned banks, the ratio was considerably higher, in some cases close to half. given this rise in the proportion of lending going to the property sector, it is perhaps not surprising that many banks now feel they are overweight to that sector and are reluctant to make new loans, while some are seeking to cut back. since the peak in early 2009, commercial property lending has decreased by about 10 per cent. foreign banks have led the contraction, reducing their exposures by a cumulative 35 per cent since the peak. loan limits have fallen more than outstandings, so that usage of lending facilities has increased to about 90 per cent. at the same time, funding through non - bank sources has also tightened. commercial mortgage - backed securities, which at the peak in 2007 accounted for around 5 per cent of total commercial property funding, have contracted by about two - thirds since then. the contraction in mortgage trusts and some other funds, entities that were substantial investors in these securities, helped to drive the decline. adding to the cyclicality in commercial property lending is the fact that these loans have tended to be among the most risky of bank loans. that was the case in the early 1990s and it has again been the case recently. the proportion of commercial property loans that are impaired has risen sharply since 2007, from less than 0. 5 per cent to around 6 per cent. this is much higher than the impairment rate for business loans in general, which has only risen to around 3 per cent ( graph 13 ). the impairment rate has risen particularly sharply for loans to the retail and residential segments of the commercial property sector. graph 13 the banks that expanded their lending the fastest through the boom have since experienced the sharpest increase in impaired loans. for foreign - owned banks, about 15 per cent of commercial property