mortgage loans balloon despite new credit law
31 August 2007

This comes after the introduction in June of the National Credit Act, which requires banks to add more stringent criteria when giving loans.

According to Kevin Lings, economist at Stanlib, mortgage loans grew by R9.5 billion a month in 2005, rising to R13.1 billion last year. The average monthly increase has been R12.97 billion for the first seven months this year.

Dave Mohr, chief economist at Citadel, said the strong increase in mortgage loans could be coming from companies.

There had been a marked acceleration in the "other loans and advances" segment, which mostly represents credit to firms.

While overall private sector growth slowed modestly, from 25 percent in June to 23.1 percent last month, Lings said annual credit growth remained "exceedingly high".

Fanie Joubert, economist at Efficient Group, said slower credit growth could be a source of comfort after the "shockingly high consumer inflation figures". He added that the moderation was an indication that interest rate increases were starting to have an effect.

The Reserve Bank increased interest rates four times last year, after expressing its concern about strong consumer borrowing.

The bank resumed its monetary policy tightening in June this year, after consumer inflation breached the target band of 3 percent to 6 percent. A threat to the bank's achievement of the target has been the broadening in sources of inflation, with food and transport costs rising more strongly.

Most economists say inflation as a result of credit growth is one element that monetary policy can contain by increasing interest rates, while price pressures from food and fuel are beyond the control of the central bank.

Tonny Mafu, www.Law24.co.za