Consumer credit still tight, new data show

TIGHT monetary policy continues to slow growth in credit to the private sector – businesses and households in South Africa.

Data released by the Reserve Bank last week showed growth fell to 11,1 per cent last month, from 11,9 percent in January and a peak of 27,5 per cent in October 2005.The figure, which measures growth over 12 months, is the lowest since November 2004, when private sector credit grew an annual 10,7 per cent, the lagged impact of tight monetary policy in 2002 and 2003.The sharp fall in credit extension now is due to a five percentage point hike in interest rates between June 2006 and June last year.Households appear to be responsible for the falling trend over the past few months.Kevin Lings, an economist at Stanlib, said growth in consumer credit was running well below double digits at 7,1 per cent last month. The figure, which represents growth over the year to last month, ‘compares with a recent peak of 24,7 per cent a year ago’, said Lings. He pointed out that with inflation at 8,6 per cent, last month’s figure represented a decline in real terms.But growth in corporate credit remains strong, at 15,7 per cent last month. Companies ‘are possibly in need of working capital’, said Lings.Mortgage loans, at N$974,9 billion, made up nearly half of the N$2 trillion in private sector credit. A breakdown of residential and commercial property data shows the clear divergence between the borrowing patterns of companies and households.John Loos, a property strategist at First National Bank, said residential mortgage growth had slowed to 9,6 per cent in January, from 10,1 per cent in December. The breakdown lags the overall data’s release by a month, so that is the latest available figure.Loos noted: ‘By contrast, the commercial mortgage loan book for the country’s banking sector grew by a still healthy 25,6 per cent in January.’Last month’s mortgage figure appears anomalous in one respect: in the month, outstanding mortgages rose N$7,3-billion, after growth of only N$700-million in January and N$3,7-billion in December.However, Carmen Altenkirch, a Nedbank economist, said the monthly rebound did not suggest a recovery.She thought it could be a spillover effect from delays in the Deeds Office in January, which resulted in the abnormally low figure last month.Nedbank’s economics unit said growth in instalment sales and leasing finance ‘continued to ease, mainly due to falling household demand for new cars. As a result, growth in this category of loans slowed to only 3,1 per cent year on year, down from an already weak 7,5 percent in December 2008 and 12,9 percent in December 2007.’Nedbank predicted ‘a further 100 basis point cut’ when the Reserve Bank’s monetary policy committee (MPC) meet next month, ‘followed by an additional 200 basis points by August this year’.The MPC cut the repo rate from a peak of 12 per cent, starting in December.After advancing its April MPC meeting to this month, it pushed the repo rate down to 9,5 per cent.Based on the experience of the previous cycle, it could be a year to 18 months before consumers regain confidence and take on further debt – and before banks relax their current high credit requirements.-Business Report