Johannesburg - The rand held steady against the dollar early on Tuesday as data showed credit demand growth quickened more than expected in December, signalling a modest recovery in the economy. Later the rand strengthened.
Growth in credit demand by South Africa’s private sector rose to 5.1 percent year-on-year in December from 4.6 percent in November, mainly driven by credit to companies, while the value of outstanding balances in the household sector increased by a negligible 0.7 percent to R1.48 billion, down from growth of 4.5 percent in 2015.
Household credit demand remained subdued, increasing by 0.2 percent in December, which, according to Nedbank, kept the annual growth rate steady at 0.7 percent.
“General credit conditions were very weak at the end of 2016 compared with 2015, when PSCE (private sector credit extension) growth of more than 10 percent was recorded, with household credit increasing by 4.5 percent, while corporate credit grew by more than 14 percent.”
Nedbank said the breakdown shows credit growth was pushed up by mortgages and other assets and liabilities in December, which together accounted for 81.7 percent of total credit. “However, the 5.2 percent and 7.3 percent annual growth recorded in the two categories remained far lower than 6.2 percent and 13.5 percent growth recorded at the end of 2015, reflecting difficult conditions in the real estate market as well as high consumer indebtedness, which makes it difficult for banks to extend credit.”
Gerrit van Rooyen and Elize Kruger, analysts at NKC African Economics, said this reflected continued sluggish demand in the South African economy, where real economic growth of 1.2 percent is forecast for 2017, following a dismal estimate of only 0.4 percent for 2016.
“The bleak credit growth figures, especially for the household sector, where average nominal growth of only 2.3 percent was recorded in 2016, is expected to continue, given the higher cost of credit, stricter lending criteria enforced by the National Credit Act and generally high indebtedness of consumers. This scenario is likely to keep household consumption expenditure (and therefore also overall economic growth) under pressure for the foreseeable future.”
Jacques du Toit, property analyst at Absa Home Loans, said the value and growth in outstanding credit balances, especially unsecured credit, were affected by the inclusion of data related to African Bank as from April 2016. “As a result, year-on-year growth in household credit balances and some of its unsecured component may be distorted for a 12-month period.”
However, Nedbank economists Dennis Dykes and Johannes Khosa expressed a different view, saying credit demand is likely to improve further in 2017, coming off a low base in 2016, and as lower inflation and interest rates as well as improvement in consumer and business confidence boost economic spending.