Demand for loans to remain soft

MBABANE – Credit demand is likely to remain soft in the first half of 2024. The cumulative impact of the interest rate hikes is expected to continue to filter through the domestic economy and dampen credit demand both from households and business perspective.

Considering lingering strains on household finances, this will deter credit demand by households as well as extension by commercial banks. On businesses, higher interest rates will increase the cost of borrowing and financing options which would increase their respective operational costs.

RECOVERS

Credit extension growth is expected to improve gradually somewhat during the second half of the year as the interest rates ease and the economy recovers slightly.

Over the quarter, total private sector credit grew by 3.1 per cent to total E19.137 billion, following a growth of 2.2 per cent in the preceding quarter.

The increase in total private sector

credit extension was attributable to better performance of ‘credit to businesses’, which grew by 6.0 per cent, as well as a 3.4 per cent growth in ‘household’ credit. On the contrary, ‘credit to other sectors’ declined by 19.7 per cent, in the period.

EXTENDED

The Ministry of Economic Planning and Development reported that credit extended to ‘businesses’ grew by 6.0 per cent, from E9.161 billion to a total of E9.711 billion in the quarter.

This increase was due to mixed performances in key industries.

‘Agriculture’ (0.3 per cent), ‘manufacturing’ (9.6 per cent), ‘construction’ (11.0 per cent), ‘distribution and tourism’ (7.6 per cent), ‘transport’ (3.6 per cent), ‘community, personal and social services’ (0.1 per cent), ‘real estate’ (2.4 per cent), and ‘other’ (15.6 per cent) sectors reported positive growth in the period, while only the ‘mining’ (-8.8 per cent) sector contracted.

Credit to businesses has benefited from the continued recovery of the economy from recent shocks, supporting ongoing expansionary initiatives.

Similarly, continued implementation of government-linked projects is expected to spur credit demand in the short to medium term.

‘Household’ credit recorded E8.440 billion, following a modest growth of 1.1 per cent in the previous quarter.

UNSECURED

The growth was broad-based as ‘housing’ (4.5 per cent), ‘motor vehicles’ (8.1 per cent) and ‘other personal (unsecured)’ (0.3 per cent) loans supported the growth.

Carried over salary adjustments and increases in government hiring are estimated to have positively influenced household credit in the quarter.