Bank credit extension slows further

GROWTH in bank credit extended to the private sector has slowed for three months in a row.

Reserve Bank data released on Friday showed that, in the 12 months to August, credit rose 7.93 percent, from the 12-month increase of 8.34 percent in July and 8.67 percent in June. The recent peak was the 9.2 percent recorded in March.

The type of lending that showed most strength was instalment sales credit with year-on-year growth of 16.5 percent.

Standard Bank economist Shireen Darmalingam said the figure was “in line with strong growth in vehicle sales”. This was due to “a weaker exchange rate, which prompted a buy-ahead spree; supportive interest rates, which boosted affordability; and negative real new vehicle price increases”.

The National Association of Automobile Manufacturers of SA, reported last month that in the year to August, new car sales were 12.5 percent higher than during the corresponding eight months last year, while “the daily selling rate last month remained close to fiveyear-high levels”.

Growth in the other loans and advances category, which includes credit cards and other types of unsecured lending, was also buoyant at 14.6 percent. Banks have recently focused on unsecured lending, which attracts higher interest rates, to boost their margins at a time when volumes are weak.

Credit to households rose nearly 9 percent and to corporates just more than 6 percent.

But Barclays Research, comparing three-month on three-month numbers, noted an alarming trend: credit card usage by the corporate sector grew by 19.5 percent in the three months to August, from the previous three months. The figure was more than double the 9.6 percent recorded in July.

“This is concerning, since businesses do not use credit card debt to expand, but rather to cover running costs, which suggests that some are becoming cash-strapped.”

Year-on-year growth in mortgages remained slow at just more than 2 percent. However, outstanding mortgage loans at R1.1 trillion still represent nearly half the R2.3 trillion in total credit to the private sector.

Darmalingam described the data as consistent with her expectation that gross domestic product would expand less than 3 percent this year.

The Reserve Bank cut its growth forecast for the year to 2.6 percent.

Nedbank’s economics unit said the Reserve Bank’s monetary policy committee was likely to keep interest rates unchanged until late next year or even early 2014.