In April 2011, SA’s growth in broad money supply (M3) was recorded at 6.0%y/y, which is below the 6.5%y/y recorded in March 2011, and below market expectations for a rise of 6.9%y/y. The overall trend in money supply growth is still softening, but given the extremely low base that has been established, the annual rate of change is still expected to increase modestly during 2011.
Private sector credit rose by a fairly substantial 0.8%m/m (+R17.46bn) in April 2011. On an annual basis, the rate of change in private sector credit was recorded at +6.2%y/y, up from 5.2%y/y in March 2011. This was above market expectations for a rise of 5.6%y/y.
The growth in private sector credit in April was driven mostly by a strong rise in ‘other loans and advances’, (up 1.2%m/m or R11.7bn), which reflects mainly corporate credit. In contrast, consumer credit rose by only 0.1%m/m in April or R1.6bn.
During the first four months of 2011 consumer credit has risen by a total of R24.0bn, which compares with R22.2bn during the corresponding period in 2010. The rate of growth in consumer credit can be considered very modest, especially for this phase of the business cycle and the fact that interest rates are at their lowest level since 1974. Clearly, the combined effects of the NCA coupled with increased conservatism on the part of banks, retailers and consumers, are keeping household credit growth well contained.
During April, mortgage credit recorded another modest rise, growing by only 0.2%m/m or R2.1bn. On an annual basis, mortgage credit is up only 3.0%. This is consistent with the sluggish levels of activity in the residential and commercial property sectors.
While credit growth is still trending higher, the rate of expansion remains relatively muted. It is fair to say that 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 (cash sales) and not a rise in credit. Credit demand typically emerges a little later in the recovery (especially if inflation starts to rise).
The delay in credit growth has also been 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 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 modestly higher during 2011, as the combination of 30-year low interest rates, improved income growth, reduced debt servicing costs and the slightly easier lending criteria out of banks start to have a more positive effect.
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