Demand for private sector credit rose for a sixthconsecutive month in December, buoyed by improving demand from SA corporates that have been reluctant to take on debt during the pandemic.
Private sector credit extension rose 2.6% year on year in December, from 2.5% in the prior month, its fastest pace of growth since February, and in line with economists’ expectations.
Credit extended to corporates, which comprises over half of total credit extended, has recently moved into positive territory after eight months of contraction, but at just 0.6% growth year on year it continues to reflect the dire effects of the pandemic-induced lockdowns on the corporate sector, Investec economist Lara Hodes said in a note.
SA banks have noted constrained demand for credit by companies during Covid-19, with many opting to reduce debt in the midst of significant economic uncertainty, rather than betting on growth and taking advantage of historically-low borrowing costs.
Growth in credit extended to households eased to 5.1% in December, from 5.4% the prior month, with asset-backed finance continuing to drive the lift in household credit.
With mortgage advances - which comprise about 60% of all household credit - growing by 6.9% year on year in December, it is a deceleration from the annual growth rates logged over the last few months, said Hodes. Mortgage advances had grown 7.3% year on year in November.
“Indeed, demand has decelerated in the residential sector of the property market as the pandemic has progressed, and with labour market conditions still unfavourable and monetary policy conditions tightening, we could see a further decrease in activity,” she said.
Borrowing costs are expected to lift significantly in 2022, with the SA Reserve Bank hiking the repurchase rate 25 basis points to 4% at its January meeting, the second-consecutive meeting at which it raised rates. The Bank’s internal quarterly projection model predicts interest rates will end 2022 at 4.9%, with some economists expecting SA to see four more 25 basis point hikes this year.
Household demand will be supported by the modest improvement in household finances, but the upside will partly be held back by rising interest rates as well as poor growth and employment prospects, said Nedbank economists Johannes Khosa and Nicky Weimar in a note.
Growth in corporate demand will accelerate off a low base, supported by some improvement in capital spending, they said.
“However, factors such as power supply shortages, the poor economic environment, and Covid-19 related uncertainties, as well as ample spare capacity, will still cause investors to be wary of accelerating capital expenditure significantly,” the economists said.
Update: January 31 2022
This article has been updated with additional information and economist comment.
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