Loans and advances to the private sector contracted for a fourth consecutive month in June, with corporate activity continuing to weigh due to uncertainty over SA’s economic prospects.
Private-sector credit extension fell 0.54% year on year in June, slightly worse than the 0.4% drop expected in the Trading Economics consensus, providing further confirmation that many SA businesses are more interested in reducing debt than betting on future growth.
Corporate credit fell 5.2% from a year earlier in June, compared with a 5% drop previously. Investec economist Kamilla Kaplan said this reflected uncertainty regarding SA’s economic recovery.
“Moreover, corporate earnings have recovered somewhat compared to the onset of the pandemic and the imposition of the strict lockdown in the second half of 2020,” Kaplan said in a note.
Household credit extension growth remained steady at 5.6% year on year in June, with Kaplan attributing this to support from low interest rates and demand for big-ticket items from higher-income earners less affected by the Covid-19 fallout.
This was benefiting asset-based finance, but depressed consumer confidence, and a weak labour market was likely restraining both demand for and supply of unsecured credit, Kaplan said, referring to, among other lending practices, overdrafts and credit cards.
Unsecured household credit growth moderated to 1.7% year on year in June from 2% in May.
Nedbank Group Economic Unit economists Nicky Weimar and Johannes Khoza said they expected credit growth to improve in the second half of 2021, albeit off a low base, with a recovery in disposable income and low interests rates set to support demand from households.
This will be partly limited by an unfavourable jobs market, while an uncertain economic outlook will continue to reduce investor’s risk appetite and willingness to embark on a strong investment drive, the said.
“Corporate credit demand will also probably pick up as some of the companies that were affected by the riots in July start to rebuild,” Nedbank said.
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