SOUTH African households are reining in their borrowing but strong credit extension to the corporate sector‚ ostensibly to fuel South African firms’ expansion into Africa‚ has caused a meaningful increase in South Africa’s credit growth over the first quarter.
Private-sector credit extension rose by 8.8% year on year in March‚ well above market expectations of 8.3%.
This reflects substantial growth of 1.2%‚ or R31.7-billion‚ in March compared to February’s figure. Of this amount‚ R28.15-billion was extended to the corporate sector.
The annual rate of growth in corporate credit is now 12.8% – the highest annual growth rate since early 2009.
In fact‚ almost 70% of all credit growth during the first quarter was due to the corporate sector‚ notes Stanlib chief economist Kevin Lings.
Though the Reserve Bank data do not provide detail as to what corporates are using this credit for‚ on aggregate South Africa’s corporate sector is under-leveraged and medium to large firms are not generally showing any signs of distress.
Given that domestic economic activity is muted‚ this suggests that the rise in demand for credit by South African companies reflects a response to a pick-up in external economic activity.
Lings suspects that a significant element of corporate borrowing is being used to finance South African firms’ expansion into Africa‚ as well as demand for trade finance and some investment expansion.
“South African exports to Africa are at record highs and many South African companies are announcing big expansion plans into Africa‚ so I don’t think it’s a big stretch to say that a key component of the rise in corporate credit extension is the local funding of business activity in the rest of Africa‚” he says.
Meanwhile‚ a major slowdown in most categories of household-related lending‚ especially in the area of unsecured credit‚ continues to drive overall household sector credit growth lower.
Growth in credit extension to households slowed to just 4.76% year on year in March‚ down from 5.2% in February and well below the high of 10.4% reached in November 2012.
“This slowdown in growth is crucial in lowering household sector vulnerability to interest rate hiking at a time when consumer price inflation is breaching the 6% upper target limit‚ and it would appear that further interest rate hiking may be on the way‚” says First National Bank strategist John Loos. — BDlive
BSA corporate sector fuels credit extension during first quarter
Private-sector credit extension rose by 8.8% year on year in March‚ well above market expectations of 8.3%.
This reflects substantial growth of 1.2%‚ or R31.7-billion‚ in March compared to February’s figure. Of this amount‚ R28.15-billion was extended to the corporate sector.
The annual rate of growth in corporate credit is now 12.8% – the highest annual growth rate since early 2009.
In fact‚ almost 70% of all credit growth during the first quarter was due to the corporate sector‚ notes Stanlib chief economist Kevin Lings.
Though the Reserve Bank data do not provide detail as to what corporates are using this credit for‚ on aggregate South Africa’s corporate sector is under-leveraged and medium to large firms are not generally showing any signs of distress.
Given that domestic economic activity is muted‚ this suggests that the rise in demand for credit by South African companies reflects a response to a pick-up in external economic activity.
Lings suspects that a significant element of corporate borrowing is being used to finance South African firms’ expansion into Africa‚ as well as demand for trade finance and some investment expansion.
“South African exports to Africa are at record highs and many South African companies are announcing big expansion plans into Africa‚ so I don’t think it’s a big stretch to say that a key component of the rise in corporate credit extension is the local funding of business activity in the rest of Africa‚” he says.
Meanwhile‚ a major slowdown in most categories of household-related lending‚ especially in the area of unsecured credit‚ continues to drive overall household sector credit growth lower.
Growth in credit extension to households slowed to just 4.76% year on year in March‚ down from 5.2% in February and well below the high of 10.4% reached in November 2012.
“This slowdown in growth is crucial in lowering household sector vulnerability to interest rate hiking at a time when consumer price inflation is breaching the 6% upper target limit‚ and it would appear that further interest rate hiking may be on the way‚” says First National Bank strategist John Loos. — BDlive
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