Private sector credit demand logged its 19th successive month of growth in January, rising well above market expectations and at the fastest pace in three months, the latest Reserve Bank data shows.
After three successive months of slowing growth, Bank data released on Tuesday shows that private sector credit accelerated 8.4% year on year in January, topping a Thomson Reuters consensus of 7.5%.
The forecast-beating credit demand in January comes amid rising interest rates and an economy predicted to show little to no growth this year, a context that would typically curtail the appetite for borrowing from businesses and households.
But stacked on the other side of the equation is the compelling argument to continue borrowing: SA is amid an investment cycle in energy generation and households are grappling with the elevated cost of living.
The reading follows December’s 7.7% year-on-year growth and marks the 19th consecutive month of a rise in private sector credit.
The rise was led by household and corporate credit. Credit uptake by corporates, which makes up more than half of the private sector credit extension, grew 8.8% year on year compared with 7.7% in December.
Unsecured
Bank data shows that the unsecured general loans and advances subgroup, which comprises 46% of credit extended to corporates, increased 13.2% from 12.2% in December.
Mortgage advances, which comprise 23% more of corporate credit, also increased, to 6.4% from 5.7%.
Bank data shows that household credit demand increased even more in January, rising to 7.9% year on year from an already high 7.7% in December.
Investec economist Lara Hodes said that the unsecured category — general loans and advances, overdrafts and credit card advances — which makes up about 24% of credit afforded to households, rose 10.2% from 9.2%. This “further reveals the state of consumers who remain financially constrained and in many cases are relying on debt to fund the rising cost of living”.
“This despite a marked rise in borrowing costs with further hikes likely in the coming months. Indeed, additional fuel price increases are being implemented in March, while food price inflation remains elevated,” Hodes said.
Data also shows that household instalment sales and leasing finance credit increased further, 8.1% from an already high 8.0%.
The latest numbers released by motor industry body Naamsa show that despite persistent load-shedding weighing on activity, new passenger vehicle sales were up in January.
The December reading reflected the slowest pace of credit-demand growth since July, when headline inflation reached a 13-year high of 7.8% and the Bank increased rates 75 basis points — marking the first of three similar rate hikes, the others coming in September and November, respectively.
Surprised
The January reading surprised, with some economists expecting credit demand to start moderating mainly due to the slowing economy in 2023, undermined by incessant power outages, with elevated inflation and higher borrowing costs.
Nedbank economist Liandra da Silva said even though credit demand had edged higher in January, the trend is unlikely to continue as the base effects continue to dissipate and higher interest rates begin to bite.
“Household credit demand will be further contained by the strain on incomes, sticky inflation, particularly food inflation, and higher energy prices. Corporate credit demand will be supported by investment in renewable energy projects,” Da Silva said.
The expected slowdown in global and domestic growth will weigh on demand, company performance, and thus on corporate demand for credit.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.