Pri­vate sec­tor credit rises in the face of weak busi­ness con­fi­dence

The Star Early Edition - - BUSINESS NEWS - Ka­belo Khu­malo

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.