Household lending in positive territory
October 30, 2009
By Ethel Hazelhurst
Lending to households is still in positive territory, according to Reserve Bank figures, while lending to corporates has fallen over the past few months.
Kevin Lings, an economist at Stanlib, said: "Private sector credit declined by a very substantial 0.6 percent month on month in September, or R12.41 billion, mostly as a result of an R8.5bn decline in corporate credit. Over the past year, corporate credit is down a substantial 3.9 percent year on year."
Lending to households, however, rose 3.3 percent year on year in September.
Chris Hart, the chief strategist at Investment Solutions, said the contraction in corporate credit was a discouraging sign. "Where households usually borrow for consumption, businesses borrow to invest."
He said the economic downturn had been exacerbated by the collapse in credit to a point where credit growth was "way below the inflation rate".
Hart said the figures might prompt an interest rate cut when the Reserve Bank's monetary policy committee meets next month. But he believed a cut could be counterproductive unless it went hand in hand with other measures to improve competitiveness and promote savings.
Legislation to break down barriers to entry in the economy was among the measures he suggested, opening it up to more competition. And he advocated scrapping tax on interest and capital gains to encourage savings. He urged an increase in VAT and fuel levies to deter consumption in the future, when the low level of interest rates revives consumption spending.
Lings pointed out that signs of improvement could be seen in monthly changes in some types of lending.
"Mortgage credit rose by a further 0.2 percent month on month in September, or R1.5bn," Lings said. "During the past two months, the growth in mortgage activity has been a little more encouraging when compared with the preceding four months... Over the period April to July, total mortgage credit in South Africa rose by a paltry R760 million, reflecting that banks applied strict lending.
"In August and September, mortgage credit rose by a little more heartening R3.95bn. Fortunately, some of the banks have recently announced that they will be partly relaxing some of their mortgage lending criteria, which should start to reflect in a modest pick-up in mortgage credit advances off a very low base."
Jacques du Toit, a senior property analyst at Absa, said: "Conditions in the housing market appear to be changing for the better, with nominal and real growth in house prices recorded on a monthly basis lately."
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