Private sector credit weakened even further in August, falling to its lowest level since February 2020, weighed down by higher interest rates and subdued economic activity.
Reserve Bank data released on Friday shows it weakened to 4.4% from 5.9% in July from a peak of 9.7% in September 2022 and worse than the consensus forecast of 5%.
Nedbank senior economist Johannes Khosa said the cumulative impact of the interest rate hikes will continue to filter through the economy, keeping debt service costs high and compelling households to be cautious about spending and incurring additional debt.
“We expect credit growth to ease further off a higher base and due to an unfavourable economic environment during the remainder of the year,” Khosa said. “The downward pressure will come from the weakness in households and companies’ demand.”
Bank data shows the performance of the subcategories was mixed, but most of the drag came from the bills and investments category, which contracted for the third consecutive month, by 1.9% month on month and 1.1% on an annual basis.
The data shows growth in mortgages and other loans and advances also moderated further, but instalment and leasing finance continued to accelerate, up 10% on an annual basis, the highest since June 2014, from 9.8%.
Growth in loans and advances, excluding bills and investments, fell to 4.9% from 6.4%, with credit extension to households and companies slowing further.
Components slowed
Bank data shows household credit continued to reflect the impact of weaker household finances, higher interest rates, fragile consumer confidence, and cautious lenders.
Household credit growth eased to 5.8% in August, the lowest since January 2022, from 6.1% in July, as all the components, except credit card usage, slowed. Corporate credit extension also eased further, falling off a higher base to 4% from 6.8%.
Bank data shows the downward pressure came from overdrafts, which contracted for the first time since June 2021, falling 0.3% in August after a robust 10.9% growth in July. The data shows growth in mortgages and general loans also moderated further. In contrast, corporate instalment sales and leasing finance, and credit card usage accelerated.
FNB chief economist Mamello Matikinca-Ngwenya said private sector credit growth is consistent with restrictive monetary policy, lower demand for credit and cautious supply of credit by lenders.
“The Reserve Bank quarterly bulletin, released on Thursday, indicated that households’ debt service cost increased,” Matikinca-Ngwenya said.
“Year-to-date financing of existing debt has expanded enormously by 34.6% in the first half of this year, reflecting an increase in debt stock and [an] accumulative 475 basis points interest rate lift during the current hiking cycle.”
Faded noticeably
Standard Bank’s head of research, Elna Moolman, said the growth in household and corporate credit has faded noticeably in recent months.
“Our seasonally adjusted series confirm very weak momentum also once the impact of seasonal factors and base effects are accounted for. We expect a further moderation in the coming months,” Moolman said.
While credit trends have not been a key determinant of the Reserve Bank’s interest rate decisions in the latest cycle, the data provides further support to the bank’s view that interest rates have peaked, she said.
Nedbank said corporate credit will continue to benefit from renewable energy projects as companies invest in alternative power sources.
“But corporate credit demand will partly be contained as poor growth prospects, fading profits and high operational costs weigh on business confidence and lead to the scrapping or postponing large capital expenditure plans,” Khosa said. “We forecast bank credit growth to end the year at about 5.5%, and remain subdued in early 2024.”
Credit growth should start rising slightly during the second half of next year as the interest rates ease and the economy improves somewhat, he said.
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