Private-sector credit extension grew by the smallest increment in January 2024 since January two years ago, a time when the Reserve Bank implemented policy normalisation by accelerating interest-rate hikes to counter monetary expansion policy undertaken during the Covid-19 pandemic.
Reserve Bank data published on Thursday shows private sector credit grew by 3.2% year on year in January 2024, missing market forecasts of a 4.3% increase and slowing from a 4.9% rise in the previous month. It was also the 31st consecutive month of growth in private credit.
The fall in private-sector credit reflects the effects of tight monetary policy. Bank data shows interest rates are currently at the highest level since early 2009.
Bank data shows most of the subcategories performed poorly reflecting weaker economic conditions.
The bills and investments category contracted by 4.9% month on month, dragging the year-on-year growth rate down to 1.1% from 8.2%.
Mortgages edged down to 3.4% year on year from 3.5%, while the other loans and advances category, dominated by unsecured credit to households and companies, slowed to 1.3% on a yearly basis. This is the weakest mortgage growth rate since October 2021.
Data also shows instalment sales and leasing finance bucked the trend, accelerating to 10.1% year on year the strongest since April 2014.
Growth in loans and advances — bank credit excluding the bills and investments category — fell to about a two-year low of 3.3% from 4.7%.
The Reserve Bank said both loans to households and companies eased. However, company loans contributed the most to the slowdown, declining 1.2% month on month, dragging the annual growth rate to 2.6% from 5%.
Nedbank senior economist Johannes Khosa said the performances of the subcomponents were mixed.
Bank data shows that growth in general loans, which were mainly used to finance capital spending, eased off a high base to only 0.8% year on year from 3%.
Overdrafts contracted for the first time in three months. Commercial mortgages remained relatively firm, although the growth rate eased slightly from 3.9% to 3.7%.
The Bank said credit card usage also rose sharply — 10.4% — from 7.8%
The household market also weakened further as the effects of higher interest rates continued to weigh on South Africans, poor economic prospects eroded household confidence and commercial banks were more cautious about extending credit.
The data shows growth in household credit slowed to 4.1%, the lowest since March 2021.
Home loans remained subdued. Personal loans slowed to a two-year low of 1.2%. from 4.2% but household credit card usage was still robust at 9.2% from 9.3% and overdrafts recovered following a sharp contraction in December indicating that households resorted to credit to supplement spending on essential goods and services.
Instalment sales and leasing finance remained surprisingly resilient, with the growth rate up slightly to 7.4% from 7%.
Khosa said they expect credit demand to remain subdued in the first half of 2024 as the cumulative effectst of the interest rate hikes will continue to filter through the economy.
“Confidence also remains fragile, given the poor growth prospects and heightened policy uncertainty ahead of the national elections. As a result, households will remain cautious about borrowing and spending extensively on nonessentials,” he said.
He said commercial banks would remain wary of accelerating credit extension given the strain on household finances.
“Corporate demand will continue to be supported by renewable energy projects, but the upside will be contained by fading profits and high operational costs, which will convince many companies to trim large capital-expenditure plans,” Khosa said.
He added that Nedbank expected credit growth to improve gradually during the second half of the year as interest rates eased and the economy recovered slightly.
Senior economist at Oxford Economics Jee-A van der Linder said when applying January's inflation rate of 5.3% year on year, private-sector credit recorded “negative real growth of 2.1% in January”, pointing to very weak credit demand.
“SA credit environment for households is constrained by the generally high indebtedness of consumers and a weak job market," van der Linder said.
“What's more, an increasingly onerous business environment is eroding profitability while weak business sentiment saps corporate credit demand.”
Van der Linde said financial pressure on South Africans is expected to persist in the first half of this year.
“Despite restrictive monetary policy, we argue that the Reserve Bank is unlikely to loosen monetary policy ahead of the US Federal Reserve, as upside risks to the domestic inflation outlook, capital flow volatility, and a weak currency, among other factors, imply that the Bank does not have the luxury to implement early rate cuts — with the repo rate is currently 8.25%,” he said.
It is expected the Bank will start cutting rates in the third quarter of 2024 and see the repo rate at 7.75% by the end of the year, he added.
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