SOUTH African households and the corporate sector are expected to remain reluctant to take on more credit towards the end of the year as the cost of borrowing is still elevated due to stubbornly high interest rates and weak economic activity.
Data from the SA Reserve Bank (SARB) on Friday showed that private sector credit extension (PSCE) only advanced by 4.38% year-on-year, compared with a 5.87% increase in July.
This was below market forecasts of a 5% rise, and was the weakest PSCE data in more than a year.
However, it marked the 26th straight month of growth in the private sector, although it was the lowest since February 2022.
According to the SARB, the performance of the subcategories was mixed, but most of the drag came from the bills and investments category, while growth in mortgages and other loans and advances also moderated further.
Growth in loans and advances, excluding bills and investments, fell to 4.9% in August from 6.4% in July, with credit extension to households and companies slowing further.
The investments category contracted by 1.0% on the month and by 2.1% when compared to the same period last year.
Investec economist Lara Hodes said persistent load shedding was weighing on growth, while political uncertainty and the high interest rate environment continued to suppress sentiment.
Meanwhile, household credit also continued to reflect the impact of weaker household finances, higher interest rates, fragile consumer confidence, and cautious lenders.
The growth rate 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.
The majority of consumers have had to make adjustments and reduce their expenditure on essential monthly expenses as the cost of living has continued to increase and interest rates remained at a 14-year high of 8.25% per annum, in spite of consumer inflation dipping towards the SARB’s midpoint target range.
“Although inflation has eased, offering consumers some reprieve, many remain highly constrained grappling with high interest rates and elevated unemployment, which in turn continues to weigh heavily on consumer confidence,” Hodes said.
In the three months to August, households’ credit expanded by only 1% from the preceding three months on a seasonally adjusted basis.
Corporate credit extension eased further off a higher base, down to 4% in August from 6.8% in July.
The performance of the subcategories was mixed, with the downward pressure coming from overdrafts which contracted for the first time since June 2021, while growth in mortgages and general loans also moderated further.
In contrast, corporate instalment sales and leasing finance, and credit card usage, accelerated.
Nedbank economist Johannes Khosa said they expected 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 would come from the weakness in both households’ and companies’ demand.
“On the household side, 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 of spending and incurring additional debt,” Khosa said.
“At the same time, banks will be cautious of extending loans given the rising payment defaults.”
Khosa said corporate credit would continue to benefit from renewable energy projects as companies invested in alternative power sources.
“However, 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,” he said.
“We forecast bank credit growth to end the year at around 5.5%, and remain subdued in early 2024. Credit growth should start rising softly during the second half of next year as the interest rates ease and the economy improves slightly.”