SA private sector credit eased for a third consecutive month in April, coming in lower than market expectations and reflecting the deleterious effects cumulative interest-rate hikes have had on household disposable income.
The Reserve Bank data released on Tuesday showed that private sector credit increased 7.1% year on year in April, missing market expectations of 7.3%, and edging down from a 7.2% growth in the previous month.
Even though this was the 22nd consecutive month of growth in private credit, the increase was at the softest pace since July 2022.
The slowdown mainly resulted from the volatile bills and investment category, which fell 11.4% year on year.
Most of the other subcategories also recorded slower annual growth rates, with the biggest categories, notably mortgages, easing to 6.4% from 6.6%, and instalment and leasing finance almost unchanged at 9.1% from 9%, reflecting a weak economy and the effect of sharply higher interest rates.
Growth in loans and advances, which excluded bills and investments, also continued to lose momentum, easing to a 9-month low of 8.8% year on year from 9.5%, with growth in loans to households and companies easing.
Data shows that household credit growth eased for a third consecutive month to 7% year on year from 7.1%.
The downward pressure came from home loans and vehicle finances, which eased to 6.4% and 7.8% from 6.6% and 8.1%, respectively, due to weaker household finances, higher interest rates and weak consumer confidence.
Growth in personal loans also eased for a third consecutive month. However, overdrafts and credit card usage increased slightly in April, probably lifted by distressed borrowing.
Corporate credit extension remained strong, despite easing for the second consecutive month to 10.7% year on year in April from 11.8% in March.
Nedbank said the moderation in the annual growth rate mainly reflects base effects.
Data shows that the downward pressure came from the biggest categories, with general loans decelerating to 10.5% yearly from a peak of 13.6% in March and commercial mortgages edging down to 6.5% from 6.6%.
Credit card usage also moderated but growth overdrafts accelerated unexpectedly to 22% in April after slowing to 17.5% in March from 22.5% in February.
Nedbank senior economist Johannes Khosa said that that suggested the need for working capital increased, probably due to the unexpected surge in production costs.
“We forecast credit growth to continue trending down off a higher base throughout the remainder of the year,” Khosa said. “While household disposable income will benefit from the gradual decline in inflation, the cumulative impact of interest-rate hikes will continue to bite.” He said those issues, together with poor economic growth prospects and the tight job market, would depress consumer confidence.
“This will convince households to remain cautious about spending and taking on new debt. At the same time, lending institutions will be likely to tighten lending standards on concerns about the likelihood of high default rates,” Khosa said.
Investec economist Lara Hodes said private credit would continue to trend downward as business confidence remained sluggish, dragged down by SA’s myriad challenges: “Primarily heightened load-shedding, which continues to weigh heavily on activity and growth potential with our GDP forecast for 2023 at a marginal 0.2%.”
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