Mortgage Bond Market

HOUSEHOLD SECTOR’S CREDIT GROWTH STRENGTHENS SLIGHTLY BUT STILL VERY WEAK

December saw further decline in the growth in value of outstanding mortgage bonds, but overall household sector credit outstanding saw a slight rise in growth, suggesting a slight increase in growth of shorter term household debt. Outstanding mortgage advances grew by 2.9% year-on-year, down slightly on November’s 3%. Total household sector credit grew by 2.1% year-on-year, slightly up from November’s 1.8%.

While declining growth in residential mortgage bonds growth remains the prime driver of the decline in growth total mortgage bond value, merely due to the size of the residential market, commercial property mortgage bond market weakness has increasingly contributed to the overall trend.

The value of residential mortgage bonds grew by a mere 3.1% in November (segment split data runs a month behind the total figure), which is far down from the 32.94% peak reached in October 2006. By comparison, the commercial property segment has seen a more spectacular decline in its mortgage growth from 41.6% year-on-year in November 2006 to 4.7% by November 2009.

This declining growth trend in mortgage bonds outstanding does not imply that there is no growth in new lending. To the contrary, we believe that by now new mortgage bond lending growth for the country as a whole should have turned positive year-onyear by now. However, SARB indications at a stage last year were that growth in capital repayments on mortgage bonds was outstripping new lending growth, and hence the declining growth trend in the mortgage book.

Although we saw a slight increase in total household sector credit growth in December, it is too early to say that this is the start of a rising trend, and the growth rate remains very weak. At such a weak rate, and given that the economy has begun to stabilise, we expect household sector nominal disposable income growth to outpace credit growth, and for the decline in the debt-to-disposable income ratio to continue in 2010, slowly leading to a more comfortable household indebtedness situation.

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