South African households and corporates are expected to take fewer loans from commercial banks this year compared to last year as a result of cumulative interest rates, which remain at a 14-year high of 8.25% per annum.
Data from the SA Reserve Bank (SARB) yesterday showed that the growth in household and private sector credit extension has faded noticeably in recent months.
The SARB said private sector credit extension (PSCE) growth ticked up slightly to 4.6% year-on-year in September, up from a marginally revised 4.4% increase in August.
This marked the 27th consecutive period of growth in the private sector, albeit the second-softest since February 2022, and was marginally better than the 3.5% consensus expected.
The slight improvement was driven mainly by the other loans and advances category, which includes unsecured credit to households and companies.
The momentum in seasonally adjusted household credit eased further in September, while there was a slight uptick in seasonally adjusted corporate credit after two months of stagnation.
Growth in other loans and advances accelerated to 4.9% from 3.3%, mortgages moderated further to 4.5%, its lowest level since March 2021, while instalment sales and leasing finance eased to 9.3% from 10%, reflecting the impact of higher interest rates and generally subdued economic conditions.
The volatile investment and bills category contracted for the fourth consecutive month, down by 2.7% year-on-year.
Investec economist Lara Hodes said the subdued economic activity had eclipsed business sentiment, leading to slower appetite for taking up loans.
“Indeed, business confidence remained lacklustre. Persistent load shedding, political uncertainty and the high interest rate environment continue to suppress sentiment,” Hodes said.
“Consumers remain highly constrained, grappling with high interest rates and elevated unemployment, which in turn continues to weigh heavily on consumer confidence.”
According to the SARB, credit uptake by corporates which makes up over half of total PSCE grew by 2.7% month-on-month, increasing to 3.8% year-on-year from 3.1% logged in August.
Specifically, the unsecured general loans and advances segment which makes up around 46% of credit afforded to corporates increased by 5.5% year-on-year after sliding to 2.6% y/y in August.
However, the SARB said the investments category which makes up an additional 14.3% of corporate credit contracted by 2.6% when compared to the same period last year.
Conversely, credit demand by households decelerated to 5.5% year-on-year from 5.9%.
In the three months to September, households’ credit expanded by only 1% from the preceding three months compared to growth of 1.1% in August and between 1.3% to 1.7% in the preceding months this year.
Credit trends have not been a key determinant of the SARB’s interest rate decisions in the latest cycle, but at the margin the persistent weakness in this data provides further support to our view that additional monetary tightening might not be needed.
Nedbank’s economist Johannes Khosa said they expected credit growth to remain modest in the coming months, ending the year at around 6% from 9.2% in December 2022, due to an unfavourable economic environment.
Khosa said the cumulative impact of the interest rate hikes would continue to filter through the economy, keeping debt service costs high and compelling households to be cautious of spending and incurring additional debt.
Khosa, however, said corporate credit would continue to benefit from renewable energy projects as companies invested in alternative electricity sources.
“However, corporate credit will partly be contained by poor growth prospects, fading profits and high operational costs, which will likely convince many companies to trim large capital expenditure plans,” he said.
“We forecast bank credit growth to remain subdued in early 2024 before gradually picking up pace during the second half of next year as the interest rates ease and the economy improves slightly.”