Private sector credit rises in the face of weak business confidence

DATA released on Friday by the SA Reserve Bank (SARB) showed that private sector credit extension rose to 6.7 percent year-on-year last month from 5.9 percent year-on-year in April, its fastest growth in eight months, while household credit remained subdued.

The rise in private credit was driven by a rise in corporate sector credit extension, which rose to 10.1 percent on a yearly basis from 8.5 percent year-on-year previously.

Growth in the corporate sector category was spurred by growth in general loans and advances, which comprised nearly 50 percent of total corporate credit, which accelerated to 13.2 percent year-on-year in May from a prior 10.8 percent recorded in May.

Expansion in the broadly defined M3 measure of money supply went up 5.9 percent year-on-year compared to an upwardly revised 5.3 percent in April.

Kamilla Kaplan, an economist at Investec, said on Friday that the current weak business confidence would impact on credit extension to the private sector going forward.

“Going forward, corporate credit growth is expected to remain affected by depressed business confidence and the weak broader economic climate. The rate of credit extended to households is expected to remain muted, on both supply and demand side considerations. Demand side factors include depressed consumer confidence, high unemployment, weak income growth and deleveraging,” Kaplan said.

Macroeconomic statistics website Trading Economics said private sector credit in South Africa averaged 14.11

Increased to 6.7% from 5.9% year-onyear in April, while household credit remained subdued.

percent from 1966 until 2016, reaching a record high of 35.88 percent in July of 1981 and a record low of -2.35 percent in May 1966.

Mortgage advances, which comprised 22.1 percent of total corporate credit lifted to 8.2 percent on an annual basis last month from 7.1 percent year-onyear recorded in April.

The average growth in the second quarter of this year was still weaker than in the prior quarter and in 2016, reflecting the slowdown in commercial property development.

On Friday, the SARB said in May household credit extension moderated to 2.8 percent yearon-year from 2.9 percent yearon-year the previous month.

The growth in mortgage advances, which makes up 60 percent of the household credit, remained sluggish at the 3 percent year-on-year mark, while unsecured credit growth eased to 4.6 percent year-on-year last month from 4.8 percent year-onyear in April.

Kaplan said the modest rates of household credit growth have been a restraining factor on household consumption expenditure, and a credit-fuelled recovery in consumption expenditure is not expected. Meaningful demandled inflationary pressures should remain absent.

Elize Kruger, an analyst at NKC Research, said that analysing the composition of the credit outcome in May 2017, it was evident that both households and corporates increased their loans.

“Applying the latest available consumer inflation rate of 5.4 percent, it is clear that overall private sector credit extension grew by a mere 1.3 percent in real terms, whereas household sector credit extension declined by 2.6 percent in real terms in May 2017.”

“The dismal credit growth environment is expected to persist given the high cost of credit, stricter lending criteria enforced by the National Credit Act, low confidence levels and generally high indebtedness of consumers,” Kruger said.