In October 2010, SA broad money supply (M3) was recorded at a growth rate of 6.4%y/y, which is above the 5.1%y/y recorded in September 2010, and also higher than market expectations for a rise of 5.2%y/y. The overall trend in money supply growth is clearly moving higher (the latest growth rate is the highest since mid-2009). Furthermore, given the extremely low base that has been established, the annual rate of change is expected to continue to increase during the remainder of 2010 and into 2011.
Private sector credit rose by a solid, but somewhat unexciting 0.4%m/m (R9.0bn) in October. On an annual basis, the rate of change in private sector credit was recorded at 5.1%y/y, up from 4.4%y/y in September 2010. This was slightly below market expectations for a rise of 5.2%y/y. Importantly, on a 3-month annualised basis, private sector credit is growing at 10.2%.
During October, mortgage credit rose by a modest 0.2%m/m or R1.75 billion, (4.7%y/y). Mortgage activity is trending higher, but the rate of increase remains reasonably subdued, especially given the historically low interest rates. It would appear that many potential customers are struggling with the affordability criteria contained in the NCA.
Consumer credit rose by a further 0.4%m/m in October and by 6.6%y/y. In the first ten months of the year, consumer credit has risen by R63.1 billion. This compares with R24.3 billion during the corresponding period in 2009. On a 3-month annualised basis, consumer credit is now growing at 10.2%. 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 5.8%y/y in September 2010 (data lags by one month). The outstanding balance on household’s credit cards has now declined, on an annual basis, for the past 19 consecutive months, reflecting a general hesitancy on the part of consumers to use credit for daily purchases. This lack of growth in credit card debt is coupled with the fact that household incomes have risen in real terms over the past few quarters and hence consumers have been making more use of cash to effect purchases.
Growth in ‘other loans and advances’ (which is mostly corporate credit) declined by R4.4 billion (-0.7%m/m) in October. Corporate credit has, generally, increased over the past 6 months but at a very modest pace reflecting the fact that many of SA’s larger businesses have excess cash on their balance sheet and are not expanding their use of either asset based finance of working-capital finance.
Overall credit growth is looking a little more encouraging. During the early part of 2010 there was some concern, especially by the bank analysts, that credit demand was not gaining any significant upward momentum. Certainly, 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 and not a rise in credit. Credit demand, typically, emerges a little later in the recovery. The delay in credit growth was also 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 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.
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