In July 2010, SA growth in broad money supply (M3) was recorded at a growth rate of 3.71%y/y, which is above the 2.40%y/y recorded in June 2010, and above market expectations for a rise of 2.53%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 continue to trend higher during the remainder of 2010 and into 2011.
Private sector credit rose by an encouraging and fairly robust 1.1%m/m or R22.25bn in July 2010. This is the largest monthly increase since 2007. On an annual basis, the rate of change in private sector credit was recorded at 1.98%y/y, up from a revised 0.9%y/y in June 2010. This was above market expectations for a rise of 1.47%y/y.
During July 2010, mortgage credit rose by a further 0.5%m/m or R5.12bn. This is still a relatively modest rise, although it represents the 12th consecutive monthly increase in mortgage activity, off an extremely low base. Furthermore, house prices have generally improved, and estate agents are reporting that there are slightly more buyers in the market, but activity levels remain far below previous peaks.
Consumer credit rose by a healthy 0.6%m/m in July 2010 and by 5.3%y/y. In the first seven months of the year, consumer credit has risen by R36.5bn, mostly in the form of mortgage finance.
There has been some concern that credit demand was not gaining any significant upward momentum. Credit growth has generally lagged the overall economic recovery, although the latest reading is a little more encouraging. 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. This delay in credit growth is currently being compounded by the fact that the banking sector is still digesting a surge in bad debts relating to the previous credit excesses, and therefore maintaining a fairly cautious approach to extending credit.
We still expect credit growth, especially consumer credit, to move steadily higher during the remainder of 2010 and the whole of 2011, as the combination of 30-year low interest rates, improved real income growth and a slightly easier lending criteria out of banks start to have a more positive effect.
Download the presentation slides