SA CREDIT GROWTH, JANUARY 2011

In January 2011, SA growth in broad money supply (M3) was recorded at 8.2%y/y, which is above the 6.9%y/y recorded in December 2010, but below market expectations for a rise of 8.5%y/y. The overall trend in money supply growth is clearly moving higher, but not at a pace that will concern the monetary authorities. Given the extremely low base that has been established, the annual rate of change is expected to continue to increase during 2011.

This month there was another ‘confusing’ change to private sector credit. Overall, private sector credit declined by 0.5%m/m or R9.4bn in January 2011. On an annual basis, the rate of change in private sector credit was recorded at 5.0%y/y, down from 5.6%y/y in December 2010. This was below market expectations for a rise of 5.9%y/y. The growth in credit was, however, distorted by a noticeable decline in the ‘investments’ category, down 15.7%m/m or a massive R22bn (mostly a valuation adjustment). Excluding the investment category, private sector credit was actually up 0.7%m/m or R12.8bn. Given this distortion it is perhaps useful to look at the monthly changes in the key categories of credit:

During December 2010, mortgage credit rose by a relatively modest 0.2%m/m or R1.7 billion (+3.8%y/y). However, there was a R5.4bn mortgage securitisation issue during January 2011, which effectively reduced the growth in mortgage advances.

Consumer credit rose by a robust 1.1%m/m in January 2011 or by 7.5%y/y (despite the securitisation issue in December 2010). During 2010, consumer credit was up a significant R70.7 billion. This compares with only R29.3 billion during the corresponding period in 2009. Most of the increase in consumer credit has been in the form of asset based finance (cars and houses) although more recently credit card debt has started to expand. During December 2010, the outstanding balance on consumer credit cards rose slightly by over R1.0bn or 2.4%y/y. This is the first annual increase in household credit card debt since February 2009.

Instalment sales credit accelerated by 6.7%y/y in January 2011, up from 6.0%y/y in December 2010. In general, instalment sales credit has grown steadily over the past year (rose by R12.2bn compared with a decline of R3bn in 2009), reflecting the dramatic improvement in SA vehicle sales.

Growth in ‘other loans and advanced’ (which is mostly corporate credit) increased by R10.2 billion (6.9%y/y) in January 2011. Currently, corporate credit demand remains fairly modest, partly reflecting the current lack of fixed investment activity within the private sector.

Overall, credit growth is trending higher, especially if the data is adjusted for the sharp changes in the ‘Investments’ category as well as the securitisation issue in December 2010. It is fair to say that credit growth has generally lagged the overall economic recovery. However, during most upswings, the initial part of the recovery is driven by a rise in incomes (cash sales) and not a rise in credit. Credit demand, typically, emerges a little later in the recovery (especially is inflation starts to rise). The delay in credit growth has also been compounded by the fact that the banking sector has been digesting a surge in bad debts relating to the previous credit excesses, the ongoing impact of the National Credit Act and the fact that the banks are no longer offering the ‘two-below-prime” deals they did a couple of years ago. The pricing of credit has tended to move higher, partly offsetting the 650bps reduction in the Repo rate.

We still expect credit growth, especially consumer credit, to move steadily higher during 2011, as the combination of 30-year low interest rates, improved real income growth, reduced debt servicing costs and the slightly easier lending criteria out of banks start to have a more positive effect.

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