JOHANNESBURG - Growth in private-sector loans turned modestly positive in July, partially on base factors, driven by the “all other loans and advances” and mortgages.
Data from the SA Reserve Bank (SARB) showed that private sector credit unexpectedly increased by 0.61 percent year-on-year in July 2021.
The July credit extension print completely missed market consensus of a 0.7 percent fall following a 0.54 percent drop a month earlier.
This marked the first increase in private sector credit since February following four consecutive months of decline as corporates reduced taking credit on Covid-19-induced activity.
Bank loans, which exclude the investment and bills category, improved further, with the annual growth rate rising to a one-year high of 2.1 percent in July.
The SARB said a weak uptake of credit in the corporate category remained the main drag on overall credit extension.
Corporate credit demand remained in contraction territory for the fifth month in succession, although it showed signs of modest improvement as the annual rate of decline eased to 1.0 percent in July from 2.5 percent in June.
On a monthly basis, both household and corporate demand increased, but the annual growth in household credit slowed to 5.3 percent from 5.6 percent.
Investec economist Kamilla Kaplan said the moderation in household credit extension was likely a function of the effects of the tightening of domestic Covid-19-linked restrictions in July.
“It is also likely that the protest action in parts of the country had an impact,” Kaplan said.
“For instance, some vehicle dealers shut down in the heavily affected areas and potential customers stayed away on potential safety concerns.
“It is possible that this explains the moderation in household vehicle finance growth in July, to 5 percent from a prior 6.6 percent.”
Meanwhile, expansion in the broadly defined M3 measure of money supply increased by 1.93 percent in July, accelerating from a 0.12 percent rise in June after seven consecutive months of deceleration.
Nedbank senior economist Nicky Weimar said they expected credit growth to continue to improve gradually in the coming months off last year’s low base.
Weimar said modest increases in disposable income and low interest rates would support household demand for credit.
“However, the upside will partly be limited by the unfavourable jobs market, which is weighing on consumer confidence and appetite for additional debt,” Weimar said.
“Corporate demand will also probably pick up as some of the companies that were affected by the riots in July start to rebuild.
“However, the unfavourable and uncertain economic environment will weigh on investors’ risk appetite and willingness to embark on a strong investment drive.
“We forecast growth in bank credit to end the year at around 2.5 percent. Subdued credit growth will mitigate against demand inflationary pressures.”
BUSINESS REPORT ONLINE