FNB: Insolvencies rise

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Johannesburg - Insolvencies in the first quarter of 2014 rose year-on-year by 2.46 percent, according to a First National Bank trend analysis.

“This was up from the -5.19 percent decline for the final quarter of 2013, and we believe that this mild quarterly rise is a more realistic indication of things to come,” FNB household and property sector strategist John Loos said in a statement on Tuesday.

“We continue to anticipate a near-term deterioration (rise) in the insolvencies level due to recently slowing disposable income growth in line with a multi-year slowdown in economic growth, combined with gradually rising interest rates.”

On a year-on-year basis, the number of insolvencies recorded by Statistics SA declined by -4.72 percent in March.

This was after a 4.46 percent rise in February.

Loos said that on a monthly basis the numbers could be volatile, and thus a trend analysis using a three-month average was preferable.

The CPI (consumer price index) inflation rate, which rose in April to 6.1 percent from six percent in March, hinted at increased pressure from higher inflation on real household disposable income.

He said it also suggested further interest rate hikes.

“Indeed, the SARB (SA Reserve Bank) has indicated that it still believes us to be in an interest rate hiking cycle, and our expectation remains for prime rate to rise mildly to 9.75 by year-end, and further to 11 percent by the end of 2015,” said Loos.

Should this happen, the household debt-service ratio would increase slightly, which would in turn take the level of insolvencies up. - Sapa

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