In May 2015, SA growth in broad money supply (M3) was essentially unchanged at 8.37%y/y, and a little ahead of market expectations for growth of 8.0%y/y. As we have highlighted each month over the past year, the overall growth in money supply continues to drift mostly sideways, and is very modest within the context of an inflation target of 3% to 6%. Conceptually, it is difficult for inflation to move structurally higher given the sustained low growth in money supply.
Private sector credit rose by R18.6 billion (0.6%m/m) in May 2015, although R11.0 billion of this related to an increase in the investments category. Effectively, the underlying increase in private sector credit was very modest. On an annual basis, the rate of change in private sector credit was recorded at 9.53%y/y, up from 9.35%y/y in April 2015. The latest annual increase in credit was slightly above market expectations (mainly as a result of the increase in the Investments category), which anticipated a rise of 9.3%y/y. The monthly breakdown of credit growth shows that mortgages rose by a further R3.9bn, while corporate credit rose by only R2.7 billion. Consumer credit remains extremely subdued, especially unsecured credit to households, after the flurry of lending in the preceding two years (see charts attached), while mortgage activity is slowly moving higher. This has been the pattern of growth in credit over the past year.
Mortgage credit, which is the largest component of private sector credit, rose by R3.9 billion in May 2015, or 0.3%m/m. On an annual basis mortgage credit is up 4.8%y/y. This is still very modest growth, but at least trending slightly higher. Hopefully the growth in mortgage activity improves over the coming year helped by still relatively low interest rates, and pend-up demand. There is some evidence of an improvement in residential building plans based.
Consumer credit rose by a total of R3.8 billion in May 2015. The latest data on unsecured credit, in particular personal loans, shows that this element of credit remains extremely subdued. It would appear that 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 3.2%y/y, which is the lowest annual rate of growth since the start of 2010.
Corporate credit rose by a relatively subdued R2.7 billion or 0.2%m/m (this excludes changes in bills discounted as well as the investments category) in May 2015. The annual rate of growth slowed to 14.4%y/y from a robust 15.1%y/y in April 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.
Once again our commentary on South Africa’s private sector credit growth has remained largely unchanged. This has been the situation for a number of months. This is because the rate of expansion in total private sector credit is unexciting; especially by historical standards, with no new trends developing. Corporate credit remains the most robust element of credit, but is expected to moderate over the coming months. There is still an upward bias in the broader mortgage market, but the pace of improvement is slow. Consumer credit is still extremely soft and not contributing much to the overall growth in consumer activity in South Africa. None of this will pose any inflation concerns for the Reserve Bank. 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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