In October 2015, SA growth in broad money supply (M3) was recorded somewhat higher at 9.74%y/y, up from a growth rate of 8.47%y/y in September 2015, and a little ahead of market expectations for a growth of 8.70%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 R21.4 billion (0.7%m/m) in October 2015, after growing by R15.2bn (0.5%m/m) in September 2015. On an annual basis, the rate of change in private sector credit was recorded at 8.9%y/y, up from 8.4%y/y in September 2015. The latest annual increase in credit was slightly above market expectations, which anticipated a rise of 8.5%y/y. The monthly breakdown of credit growth shows that mortgages rose by a welcome R5.5bn, while corporate credit jumped R9.0 billion. Consumer credit remains extremely subdued, especially unsecured credit to households, after the flurry of lending in earlier years . 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 R5.5 billion in October 2015, or 0.4%m/m. On an annual basis mortgage credit is up 6.0%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 R7.8 billion in October 2015. 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 4.5%y/y, which is extremely low by historical standards.
As mentioned above, corporate credit rose by R9.0 billion or 0.7%m/m (this excludes changes in bills discounted as well as the investments category) in October 2015. The annual rate of growth was recorded at 12.9%y/y, below the recent peak of 15.0%y/y in April 2015. Corporate activity has been the main credit stimulus in South Africa over the past 18 months, but is now slowing. Unfortunately, the growth in corporate credit has not included a pick-up in private sector fixed investment activity. The annual rate of growth is corporate credit is expected to slow further 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. 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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