South African households are expected to continue borrowing less from the banks due to the high costs of debt even as companies are taking more loans to install alternative sources of energy in a bid to keep their business doors open on the back of persistent load shedding.
Data from the South African Reserve Bank (SARB) yesterday showed that demand for credit rose more than expected to a five-month high in December, buoyed by the corporate sector.
The SARB said that private sector credit extension (PSCE) grew by 4.9% year-on-year in December 2023 compared with a 3.8% rise in November, surpassing market forecasts of 4.1% growth.
This was also the 30th consecutive month of growth in private credit, and the largest increase since July 2023.
Credit growth’s overshoot in December was underpinned by stronger-than-expected growth in the corporate sector’s general loans and advances.
Credit uptake by corporates, which makes up over half of total PSCE, increased by 5.5% year-on-year in December compared with 3.1% logged in November.
Growth in all the subcomponents quickened, with general loans the most significant driver, up by 4.2% as it continued to benefit from robust activity in the renewable energy industry.
The unsecured general loans and advances segment which makes up about 46% of credit afforded to corporates accelerated to 4.2% from 2.9% previously.
Despite this, the trend in general loans was weaker throughout 2023 due to broadly subdued fixed investment activity.
Nedbank economist Johannes Khosa said credit demand was likely to remain subdued in the first half of 2024, but improve gradually during the second half of the year as the interest rates ease and the economy recovers slightly.
Khosa said the cumulative impact of the interest rate hikes would continue to filter through the economy, which coupled with fragile confidence amid poor growth prospects and heightened political uncertainty, will keep households cautious of borrowing and spending.
“At the same, commercial banks will remain wary of accelerating credit extension given the strains on household finances,” Khosa said.
“Corporate demand will continue to be supported by renewable energy projects, but the upside will be contained by fading profits and high operational costs, which will convince many companies to trim large capital expenditure plans.”
Meanwhile, expansion in the broadly defined M3 measure of money supply accelerated to 7.63% in December, which was also well above market expectations of a 5.5% rise.
However, household credit growth weakened further, both on a year-on-year and seasonally adjusted basis.
Commercial banks are more cautious in extending credit, given the vulnerabilities of household balance sheets and rising defaults.
Within the household segment, mortgage advances which make up a significant 59% of household credit demand slid notably to 3.3% from 4.0% previously.
Investec economist Lara Hodes said building activity growth in the residential segment slowed in the fourth quarter of 2023 and the outlook for work also deteriorated in the latest building confidence survey.
“Credit demand by households saw growth decelerate on an annual basis in December, falling to 4.3% from 4.8% and 5.2% logged in November and October respectively,” Hodes said.
“Consumers remain highly constrained grappling with the high cost of living. Moreover, the official unemployment rate (although it has come down modestly) remains at an elevated 31.9%.”