Slowdown in credit growth

2011-07-01 00:00

kavith harrilall

THE lending activities of banks and other financial institutions remained steady in May, pointing to a lacklustre recovery in credit uptake, particularly when it comes to corporate credit demand.

According to the latest statistics from the SA Reserve Bank, domestic credit growth in May 2011 came in at 5,2%.

Although there remains positive growth in private sector credit extension, the rate of growth in May is one percentage point lower than the 6,2% growth recorded in April 2011.

The data prompted economists to stick to their view that the first interest rate hike in the rate-hiking cycle will only take place in the first quarter of next year.

Growth in credit demand from the corporate sector dropped by 0,8% month on month.

Credit demand from corporates remained positive on a year-on-year basis, coming in at 3,7% in May. However, this was significantly lower than the 4,9% year-on-year growth recorded in April.

The overall credit growth figures were held up largely by steady demand in the household sector as a result of consistently lower interest rates and positive income growth in recent quarters.

Economists expect credit growth to remain in positive territory in the coming months.

However, they remain concerned about a lack of credit uptake in the corporate sector.

Noted Nedbank’s Group Economic Unit, “Corporate demand for credit will remain relatively subdued …”

This is “businesses will probably be hesitant to expand operations too aggressively given lingering uncertainties over the strength of the local and global recoveries, significant power and transport infrastructure constraints and ample spare capacity in some sectors”.

The growth in the M3 money supply was 6,14% in May 2011. The growth in M3 has been declining steadily in 2011.

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