Tepid growth in private credit

2011-08-02 00:00

THE steady growth in household credit growth on the back of consistently lower interest rates and positive income growth in recent quarters could not lift the overall credit extension figures for June 2011.

June saw tepid growth in private sector credit extension (PSCE), with lending activities of banks and other financial institutions remaining subdued.

The sluggish growth in credit uptake means that interest rates are likely to remain stable this year. Economists expect the first hike in the cycle to take place early next year.

According to the SA Reserve Bank, PSCE came in at 5,2% year on year in June 2011.

The growth in corporate demand was unchanged at a low 3,7% while the household sector recorded slightly more buoyant seven percent growth in June 2011.

The growth in corporate demand in April 2011 was 4,9% year on year.

Mortgage advances, which contributes the bulk of the credit extended to households, maintained its upward trend, growing 3,2% year on year. However, the growth is much lower compared with previous cycles.

Instalment sales also maintained its upward trajectory, recording year-on-year growth of 8,5% in June 2011.

Nedbank’s Group Economic Unit does not expect significant credit growth in the second half of 2011.

Standard Bank economist Nomvuyo Gama said that mortgage advances, which is a key driver of credit growth, is likely to remain sluggish given the current state of the residential property market.

The growth in M3 has been steadily declining in 2011.

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