Household credit growth tumbling
The Numbers
M3 money supply: Jan 09 12.9% (YoY) compared to 13.7% in Dec 08
Private sector credit: Jan 09 11.9% (YoY) compared to 13.6% in Dec 08
Household credit: Jan 09 8.4% (YoY) compared to 15.5% in Dec 08
Company credit: Jan 09 15.6% (YoY) compared to 11.7% in Dec 08
Introduction
Credit extension to the private sector slowed markedly since November last year. As such, growth in M3 money supply also lost some of its pace. Interestingly, these slowdowns is more severe than initially thought as the South African Reserve Bank made dramatic downward revisions in both the growth in credit extension and growth in money supply numbers.
Growth in credit extension to the private sector for December was revised downward to 13.6% from 14%, whilst the revision in M3 money supply was more severe – from 14.5% to 13.6%.
Analysis
Money supply
M3 money supply grinded to a halt in January compared to December. M3 money in circulation was R1.896 trillion in January, which was only R528 million more than in December. Growth in M3 money supply for January was a mere 12.91% - almost half the growth rate of 24.51% registered in January last year. The slower rate of increase was mainly brought about by a reduction in banks’ net foreign assets as well as a slower growth in credit extension to the private sector. The slower growth rate in money supply lessens the pressure on consumer price inflation considerably.
Credit extension to the private sector
Credit extension to the private sector increased by 11.85% in January compared to a year ago. This is mainly as a result of slower growth in total loans and
advances. This number lost considerable pace from 14% in December to 11.6% in January.
It was especially as a result of a plummeting rate of expansion in consumer related credit. Year on year credit extension to households increased by 8.4% compared to 15.5% in December.
Table 1: Percentage change in credit extension to the private sector
Period
Leasing
Installments
Leasing & Installments
Mortgages
Total Credit
Households
Companies
8-Jan
-6.2
21.7
13.6
24.5
23.6
24.4
22.1
8-Feb
-7.4
21
12.8
23.1
21.8
24.3
17.1
8-Mar
-11
20.7
11.6
23.2
23.6
24.4
20.1
8-Apr
-13.2
21.6
11.7
21.9
21.5
22.4
17.2
8-May
-16.1
26
13.6
20.6
21
21.7
19
8-Jun
-18.1
27.2
14
19.9
21.3
21
20.4
8-Jul
-18.7
25.6
12.9
19.1
20.7
19.9
19
8-Aug
-19.5
23.2
11.3
17.6
19.7
18.7
18.4
8-Sep
-19.1
21.8
10.7
16.6
17.7
17.7
15
8-Oct
-19
21.3
10.5
16.1
17.1
17.2
15.6
8-Nov
-16.9
17.9
9.2
14.9
16.6
16.8
14
8-Dec
-17.6
15.7
7.5
13.2
14
15.5
11.7
9-Jan
-18.7
12.4
5
11.9
11.6
8.4
15.6
The marked slowdown in the pace at which credit is extended to households can be ascribed to methodological, legal and economic reasons. The Reserve Bank in January last year reclassified some credit categories as household credit (previous company credit) which contributed to a large jump in this number. (The same reclassification contributed to a lower base for company thereby exaggerating its credit growth.) However, it also created a high base of calculation. Secondly, the Consumer Credit Act made more aggressive lending to households more difficult. Lastly, high interest rates also strained the ability of consumers to take on more credit.
As a result the growth in asset backed credit categories such as mortgages and installment- and leasing credit continued to lose pace. Leasing contracted by 18.7%, whilst installment sales increased at 12.4% (15.7% in December). Growth in mortgages was 11.9% from 13.2% in December.
Conclusion
January’s money supply and credit growth numbers show that it is no longer a threat to inflation. Though consumer price inflation remains sticky, it is not as a result of credit extension. Though very unlikely, this might swing the Reserve Bank to announce a special meeting to reduce interest rates further.
