The slowdown in private sector credit demand deepened in November, coming in well below market expectations and reflecting the impact of a cumulative 475 basis points of interest rate hikes since November 2021.
According to data from the Reserve Bank, private sector credit increased 3.84% year on year in November — well below the market consensus of 4.4%, and below 3.94% growth recorded in October.
The increase is the 29th consecutive month of growth, but also the slowest since February 2022.
The main drag was a deceleration in mortgages and other loans and advances, which consists mainly of unsecured lending to companies and households.
Growth in all mortgages dipped to 3.8% year on year from 4.3% in October, while growth in other loans and advances slowed to 3.3% from 3.7%.
Household and corporate credit demand deteriorated further as tight monetary policy and persistent infrastructure constraints weighed on confidence and economic activity.
Household loans rose 4.8%, down from 5.2% in October.
Nedbank chief economist Nicky Weimar said the weakness in the household sector was mainly the result of a sharp deceleration in home loans and personal loans.
Weimar said households refrained from drawing down on overdrafts but continued to rely on credit cards to sustain spending, which was amplified by retailers’ Black Friday and Cyber Monday promotions.
As a result, credit card growth increased slightly to 9.1% in November from 9% in October, she said.
“Despite this, household credit demand is waning as falling asset prices, higher interest rates, and relatively poor economic prospects erode households’ confidence, income, and balance sheets,” Weimar said.
In addition, commercial banks are more cautious in extending credit given these vulnerabilities and rising defaults, reinforcing the cyclical downturn in credit growth, she added.
Bank data shows the main factors for the corporate sector were the continued slowdown in commercial mortgages and general loans.
Weimar said growth in commercial mortgages moderated to 3.2% from 3.5% previously, reflecting the impact of weak economic activity on demand for residential and non-residential property.
Growth in general loans, which account for just over 53% of company loans, also slowed, to 2.9% from 3.5%.
Weimar said the decline was somewhat exaggerated by last year’s high base but was still an indication of weaker fixed investment activity.
“Until recently, general loans were propped up by robust activity in the renewable energy industry, propelled by the need to find alternative electricity sources amid severe power outages and by the government’s renewable energy programme and structural reforms in electricity generation,” she said.
“This boost now appears to be fading. Besides mortgages and general loans, overdrafts remained subdued, and credit card growth softened.”
Weimar said the only outlier was instalment sales and leasing finance, which jumped a robust 15.2% year on year after accelerating by 14.3% in October and 13.7% in September.
Weimar said the resilience in this category reflects two key developments: “the growing shift towards online shopping, which creates demand for a fleet of vehicles as well as the collapse in rail transport, which also boosts vehicle demand as more goods need to travel via road.”
Weimar said the slowdown in credit demand from both households and the corporate sector is likely to continue and broaden into the first half of 2024.
“On the household side, the cumulative impact of the interest rate hikes will continue to filter through the economy, keeping debt service costs high. At the same time, banks will be wary of extending loans given the rising debt defaults,” she said.
While renewable energy projects will continue to offer support to corporate credit demand, “the upside will be contained by fading profits and high operational costs, which will likely convince many companies to trim large capital expenditure plans,” Weimar said. “We expect credit growth to improve gradually during the second half of next year as the interest rates ease and the economy recovers slightly.”
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