Private-sector credit remains constricted
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GROWTH in private-sector loans remained in contractionary territory for the fourth consecutive month in June as corporates reduced taking credit on Covid-19 induced activity.
Data from the SA Reserve Bank (Sarb) yesterday showed private sector credit fell by 0.5 percent year-on-year in June, following a 0.42 percent decline in May.
This decline in private sector credit extension was worse than expected as it missed the market consensus of a 0.4 percent gain.
The Sarb said the decline was primarily due to corporate credit, which has been subdued, recording no monthly growth for the third consecutive month in June.
Corporate credit continued to contract by 5.2 percent in June amid weak private sector investment rates and uncertainty regarding the economic recovery prospects.
Corporate earnings have recovered somewhat compared to the onset of the pandemic and the imposition of the strict lockdown, suppressing corporate demand for credit.
South African businesses have remained reluctant to take on more credit as uncertainties over the economic outlook remain due to rising Covid-19 cases and lockdown restrictions.
Nedbank chief economist Nicky Weimar said this could affect investors’ appetite to invest.
“Corporate demand will probably pick up as some of the companies that were affected by the riots in July start to rebuild,” Weimar said.
“However, the unfavourable and uncertain economic environment will continue to reduce investors’ risk appetite and willingness to embark on a strong investment drive.”
In contrast, household credit extension continued an upward trend, growing by a robust 5.6 percent year-on-year as demand for all categories of credit increased.
A survey by BankservAfrica yesterday showed take-home pay in South Africa eased by less than a percentage point in June, to R12 496 in real terms or R14 883 in nominal terms.
Investec economist Kamilla Kaplan said disposable income gains and low interest rates were expected to continue supporting household demand for credit.
However, this could be limited by the unfavourable job market which will weigh on consumer confidence.
“Household credit demand for asset-backed finance has been supported by low interest rates and a willingness and ability to purchase big-ticket items among higher-income earners,” Kaplan said.
“Depressed consumer confidence, a weak labour market as well as uncertainty over future income, is likely restraining both the uptake and supply of unsecured credit.”
BUSINESS REPORT ONLINE