In May 2010, SA growth in broad money supply (M3) was recorded at a still very modest 1.40%y/y, which is marginally below the growth of 1.67%y/y recorded in April 2010, and fractionally below market expectations for a rise of 1.5%y/y. The overall trend in money supply growth is still very subdued, but given the extremely low base that has been established, the annual rate of change is expected to slowly start to rise towards the end of 2010.
Private sector credit rose by a slightly more encouraging 0.5%m/m (+R10.69bn) in May. On an annual basis, the rate of change in private sector credit was recorded at +0.8%y/y, up from -0.86%y/y in April 2010. This was fractionally above market expectations for a rise of 0.6%y/y.
During May, mortgage credit rose by a further 0.3%m/m or R3.52 billion in the month. This is still a relatively modest rise, although it represents the 10th consecutive monthly increase in mortgage activity, off an extremely low base. During the past ten months, the growth in mortgage activity has been a little more encouraging when compared with the preceding 4 months. In total over the period April 2009 to July 2009 mortgage credit in SA rose by a paltry R1 627 million 2010 (average of R406 million a month), reflecting the fact that consumers were extremely scarce and banks applied very strict lending criteria. From August 2009 to May 2010, mortgage credit rose by a little more heartening average of R3.86 billion a month. Furthermore, house prices have improved, and estate agents are reporting that there are slightly more buyers in the market; but clearly activity levels remains far below previous peaks.
Consumer credit rose by a relatively modest 0.4%m/m in May and by 4.4%y/y. In the first six months of the year, consumer credit has risen by R31.6 billion (mostly in the form of mortgage finance). In contrast, corporate credit has declined by R11.3 billion over the past six months, although there was a rise on 0.4%m/m in May 2010.
Overall credit demand remains relatively subdued, with only a modest improvement in consumer credit. Corporate credit remains relatively depressed despite the modest increase in May 2010.
While there is some concern that credit demand is not gaining any significant upward momentum, it has to be recognised that the economy is still in the early stage of an economic recovery. During most upswings, the initial part of the recovery is driven by a rise in incomes and not a rise in credit. Credit demand, typically, emerges a little later in the recovery. In addition, the banking sector is still digesting a surge in bad debts relating to the previous credit excesses, so naturally they have maintained a fairly cautious approach to extending credit. We still expect credit growth, especially consumer credit, to drift modestly higher during the remainder of 2010, and more meaningfully higher in 2011, as the combination of 30-year low interest rates, improved real income growth and the slightly easier lending criteria out of banks start to have a more positive effect.
Download the presentation slides