In July 2015, SA growth in broad money supply (M3) was recorded higher at 10.25%y/y, up from a revised growth rate of 8.77%y/y in June 2015, and a little ahead of market expectations for growth of 9.00%y/y. The growth in money supply remains modest within the context of an inflation target of 3% to 6%. Conceptually, it is difficult for inflation to move structurally higher given the current growth in money supply.
Private sector credit rose by a significant R29.3 billion (1.0%m/m) in July 2015, after declining by R6.2bn (-0.2%m/m) in June 2015. On an annual basis, the rate of change in private sector credit was recorded at 8.4%y/y, up from a revised 8.05%y/y in June 2015. The latest annual increase in credit was slightly above market expectations, which anticipated a rise of 8.0%y/y. The monthly breakdown of credit growth shows that mortgages rose by a very welcome R6.0bn, while corporate credit jumped R20.4 billion, after contracting –R11.05bn in June. Consumer credit remains extremely subdued, especially unsecured credit to households, after the flurry of lending in earlier years (see charts attached). This has been the pattern of growth in consumer credit over the past year. In contrast, corporate credit continues to grow reasonably strongly, although the annual rate of change is slowing given the high base.
Mortgage credit, which is the largest component of private sector credit, rose by R6.03 billion in July 2015, or 0.5%m/m. On an annual basis mortgage credit is up 5.0%y/y. This is still modest growth, but at least trending higher. Hopefully the growth in mortgage activity improves over the coming year helped by still relatively low interest rates, and pend-up demand.
Consumer credit increased by a total of R6.8 billion in July 2015. The latest data on unsecured credit, in particular personal loans, shows that this element of credit remains relatively subdued. Banks have systematically tightened lending standards in the unsecured space after experiencing the surge in non-performing loans during 2013/2014. Over the past year, consumer credit has risen by a mere 3.6%y/y, which is extremely low by historical standards.
As mentioned above, corporate credit rose by a very substantial R20.4 billion or 1.6%m/m (this excludes changes in bills discounted as well as the investments category) in July 2015. The annual rate of growth was recorded at 11.4%y/y, well below the recent peak of 16.7%y/y in July 2014. Corporate activity has been the main credit stimulus in South Africa over the past year, and appears to reflect a range of factors including commercial property development, the growth in renewal energy projects, the funding of agricultural activity and the local funding of increased business activity in the rest of Africa. Unfortunately, the growth in corporate credit does not reflect a pick-up in private sector fixed investment activity. The annual rate of growth is corporate credit is expected to slow somewhat over the coming year, given the relatively high base and the lack of capacity expansion within South Africa’s business sector.
Our overall view on credit growth in South Africa has remained largely unchanged for a number of months. The rate of expansion in total private sector credit is still modest; especially by historical standards, but with a very slight upward bias developing in the mortgage market. This will not pose any inflation concerns for the Reserve Bank at this stage of the business cycle. Equally, the growth in credit is not providing a meaningful boost to domestic economic activity, but hopefully mortgage activity gains further momentum.
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