The growth of SA’s private sector credit extension (PSCE) eased slightly in September but remained stronger than expected on the back of firm corporate demand. However, low household credit growth suggests consumers are still under pressure.
SA’s PSCE increased by 4.6% year on year in September, after recording a 5% year-on-year increase in the prior month — its highest increase in one year. This exceeded Bloomberg’s consensus forecast of 4%.
The better-than-expected growth was driven by strong demand from the corporate sector, whose credit makes up more than half of total PSCE, according to Investec economist Lara Hodes. Corporate credit was up 5.6% year on year — down from an elevated 6.4% increase in August but reflecting a 2% month-on-month increase.
In line with the sustained growth of corporate credit, corporate investment also increased by 4.5% compared to August, reflecting a 6.4% increase from September last year.
“Indeed, business confidence edged higher in Q3 2024,” said Hodes, as the favourable electricity supply situation and increased political certainty after the formation of the GNU have buoyed sentiment.
Improved sentiment was also reflected by an increase in mortgage advances to corporates, which grew to 4.6% year on year in September — its fastest pace since July last year — as commercial mortgages continued to recover.
“According to Stats SA, non-residential building plans passed (pipeline activity) rose between June and August, when compared to the previous quarter (measured on a seasonally adjusted basis).”
This comes after the FNB/BER Building Confidence survey saw sentiment among non-residential builders lift notably in the third quarter, said Hodes.
“Specifically, order books improved in this segment of the market, with the index gauging ‘insufficient demand for new work as a business constraint’ easing to 63% in the third quarter, from an elevated 76%.”
However, company instalment sales, leasing finance and credit cash usage moderated in September, while growth in general loans — usually used to finance capital spending — hit a five-month low.
Despite sustained growth in the corporate sector, household credit growth was unchanged at 3.3% year-on-year in September. While instalment sales, leasing finance, overdrafts and credit card usage accelerated slightly after September’s rate cut, personal loans contracted for the sixth consecutive month and the growth in home loans was low.
However, Nedbank’s economic unit said the low growth is “probably the trough of the current cycle”, with household credit set to rebound in the coming months as constrained consumers benefit from further interest rate cuts.
Hodes said a further 25 basis point (bps) cut in the repo rate is likely to happen in November while others have pointed to a 50 bps cut as inflation continued to ease in recent months.
Lower inflation coupled with interest rate cuts will boost disposable incomes as debt service costs decline, said Nedbank, further supported by withdrawals from the two-pot retirement system — gradually reducing the pressure on household finances.
Given the encouraging outlook for consumers, Nedbank said it expects credit demand to accelerate slightly as consumer spending increases in line with improved confidence — with credit growth forecast just below 5% at the end of this year and 6% by the end of next year.
“The outlook for corporate credit is uncertain,” said the group. “Company loan growth will likely remain relatively volatile and subdued in the short term as fixed investment is only expected to turn the corner in 2025 when the domestic economy gains more upward traction, global growth picks up some pace, and the general operating environment improves further.”
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