Credit growth continues to pick up and unsecured lending remains the strongest credit category, the South African Reserve Bank’s review of financial stability last week showed.
Although the figures indicate a stronger economy, analysts still believe an interest rate hike will be put on hold until the end of the year.
The growth of unsecured credit — loans not backed by assets remained strong. Other loans and advances, the category that captures unsecured lending, grew at the fastest pace to 19.6% year on year, up from 17.3%. But mortgage loans, the largest category, remained tame and increased by only 0.1% month on month and 2.6% year on year.
“One driver could also be a sharply rising trend in credit card usage as individuals spend more each month due to a higher inflation rate than is officially estimated,” said Investec economist Annabel Bishop.
Private-sector credit extension increased to 9.2% year on year from 7.9% in February and against the market consensus of 8.7%. Credit to households expanded to 6.8% from 6.6% and corporate advances were up to 12.2% from 10.1%.
“The rapid growth in unsecured lending to households is driving the uptick in private sector credit extension,” said Bishop, “but as a tiny proportion of the total it is not causing the South African Reserve Bank undue concern.”
Meanwhile, growth in asset-backed credit rose marginally to 3.6% year on year from 3.3%, “boosted mainly by instalment sales and leasing finance, which rose by 1.2% month on month and 8% year on year”, Nedbank said in a statement.
Broad money-supply growth rose to 6.7% year on year from 5.9% and against the market consensus of 6.4%. Net claims on the government sector rose strongly as government deposits fell sharply and net foreign assets increased.
Although Nedbank said that continued credit growth could lead to a tightening in monetary policy, it was not clear whether the pattern would be sustained in the coming months.
The current cycle had already lost momentum on several occasions.
Again, South Africa’s fate was in the hands of the global economy.
“We still think that the underlying global and domestic environment remains more vulnerable than recent indications suggest and that the monetary policy committee will delay its first hike in interest rates to late in the year,” Nedbank said.
It certainly seemed that South Africa’s economy was standing stronger than others such as Australia, where the central bank cut its key interest rate by more than expected to 3.75%, down from 4.25%.
“Credit growth is therefore likely to remain relatively subdued in 2012,” Nedbank said.