In December 2010, SA growth in broad money supply (M3) was recorded at a 6.9%y/y, which is below the 7.2%y/y recorded in November 2010, and market expectations for a rise of 7.9%y/y. The overall trend in money supply growth is still 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.
There were some ‘confusing’ changes to private sector credit. Overall, private sector credit rose by 0.9%m/m (R17.9bn) in December 2010. On an annual basis, the rate of change in private sector credit was recorded at 5.6%y/y, up from 4.6%y/y in November 2010. This was above market expectations for a rise of 5.2%y/y. The growth in credit was, however, flattered by a very large increase in the ‘investments’ category, up 14.6%m/m or a massive R17.9bn. Excluding the investment category, private sector credit was actually down 0.1%m/m or R0.993bn. However, there was also a R5.4bn mortgage securitisation issue, which effectively reduced growth in credit, especially mortgage credit and consumer credit. Adding this back, private sector credit actually grew by around 1.1%m/m in December 2010 or 5.9%y/y.
During December, mortgage credit fell by a relatively large 0.4%m/m or R4.7 billion (4.0%y/y). However, as mentioned above, there was a R5.4bn mortgage securitisation issue during the month, which effectively reduced the growth in mortgage advances. Adding this back, mortgage advances grew by 0.1%m/m December and 4.5%y/y.
Consumer credit rose by a modest 0.2%m/m in December or by 6.9%y/y. During 2010, consumer credit was up a significant R70.7 billion. This compares with only R29.3 billion during the corresponding period in 2009. On a 3-month annualised basis, private sector credit is growing at 7.3%. Most of the increase in consumer credit has been in the form of asset based finance (cars and houses). In contrast, credit card debt continued to decline, falling by 0.03%y/y in November 2010 (data lags by one month). It is also useful to recognise that during December, the growth in consumer credit is effectively understated by the R5.4bn mortgage securitisation issue.
Instalment sales credit accelerated by 6.0%y/y in December, up from 5.6%y/y in November. In general, instalment sales credit has grown steadily over the past year, reflecting the dramatic improvement in SA vehicle sales. During 2010, instalment sales credit rose by R12.2bn compared with a decline of R3bn in 2009. That is huge turnaround.
Growth in ‘other loans and advanced’ (which is mostly corporate credit) increased by R2.7 billion (5.7%y/y) in December. Currently, there is not much demand by corporates for bank credit, partly reflecting their current lack of fixed investment activity within the private sector.
Overall credit growth is trending higher, especially if the data is adjusted for the latest securitisation issue. 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. 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 NCA 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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