SARAH BULLEN in Johannesburg | Wednesday 9.45am.
SOUTH Africa’s burgeoning rate of private-sector credit extension showed no signs of abating in July, rising an annualised 17,6% from 16% in June, despite restrictive interest rates which should have inhibited credit demand.
The baffling rise in credit extension is being explained by some economists as pre-emptive buying on large purchases such as cars before the fall in the rand hits import costs.
ING Barings chief economist Kristina Quattek adds that a move from expensive foreign financing to domestic financing as a result of the weakness of the rand and the highly attractive yields on the bond and share markets also boosted the use of bank credit. As the rand fell against the dollar in the second quarter, this move to domestic credit was heightened.
Corporate borrowing accounted for the bulk of the credit growth, with “loans and other advances” in this category soaring to an annualised 29%. Borrowing by individuals was at a lower rate, although some categories picked up, with mortgage advances posting an 11,4% annualised rise from 11,2% in June.
A fall in credit to the government sector as well as net foreign assets offset the rise private sector credit.
Money supply (M3) growth for July was largely in line with market expectations, slowing to 19,2% from 19,4% in June. Quattek said she expects both M3 money supply and credit to the private sector to slow for the rest of the year, mainly due to the sharp increase in prime lending rates and slower domestic economic activity.