Ethel Hazelhurst
Stronger growth in corporate loans boosted growth in overall credit to the private sector in January. Reserve Bank figures released yesterday showed corporate borrowing rose 8.7 percent year on year to R911 billion. Investec economist Ilke van Zyl said the rise in this category of borrowing was the strongest in almost three years.
Companies needed to invest in maintenance and possibly expansion, after a long period of borrowing very little, she said. Though many were sitting on large cash balances, it could still make sense for them to borrow because interest payments were tax deductible.
Corporates contributed about half the growth in overall private borrowing.
“We hope the trend continues and is reflective of increased business activity. Capital is typically borrowed by the corporate sector for one of two reasons – either to cover current payments or invest in infrastructure and capital outlays. The expenditure side of fourth-quarter numbers on gross domestic product will indicate which this is,” Van Zyl said
The central bank’s bulletin is due on March 19.
Van Zyl said that if the rise in corporate borrowing turned out to be due to investment in projects, it would broaden the infrastructure base “and be supportive of South Africa’s medium-term growth”.
This is in line with Finance Minister Pravin Gordhan’s plans to accelerate growth. In last week’s Budget, he called for the private sector to play its part in promoting growth by investing in the real economy, along with a government thrust to provide infrastructure.
The Budget Review recorded R3.2 trillion allocated to megaprojects under consideration by 2020.
However, Van Zyl commented: “With much of the government’s allocated spending on infrastructure not seeing the light of day, investment growth is the one important driver of the economy which has failed to sufficiently take off since the turn of the economy in the third quarter of 2009.”
Growth in overall private sector credit rose 7.3 percent year on year to R2.2 trillion. The figure was up from the 6.14 percent growth posted in December and was the strongest since April 2009 when private sector credit rose 8.47 percent.
Apart from corporate demand for funds, the impetus came from a nearly 15 percent leap in other loans and advances to R786.3bn – a category that includes overdrafts. Other loans and advances to households followed, with growth of just over 6 percent to R1.2bn.
However, mortgage loans lagged, increasing only 2.4 percent to R1.1 trillion. Only mortgage loans to households did even worse. Absa senior property analyst Jacques du Toit said this category climbed only 1.6 percent to R773.5bn.
Du Toit said the household debt-to-income ratio was expected to remain around 75 percent “and many consumers are still struggling with impaired credit records”.
Nedbank economist Isaac Matshego said credit growth would remain relatively subdued this year, “held back by uncertain global and domestic prospects, increased regulatory demands and existing high personal debt”.
The latest credit data are seen as unlikely to affect the rate decisions of the Reserve Bank’s monetary policy committee when it met towards the end of next month.
