Credit demand growth slows
Rising inflation and interest rates and weak employment growth will slow private sector credit extension in the medium term as household disposable income becomes eroded.
Economists warn that companies will remain wary of accelerating capital expenditure aggressively due to power shortages, slow progress on structural reforms and ample spare capacity in some industries.
The Reserve Bank reported on Thursday that SA private credit demand saw modest growth in May, growing 5.34% on an annual basis. Though this was the 11th straight month of credit expansion, the reading came below market expectations of 5.7% after a revision downward from 5.87%.
The reading is also lower than the 5.6% year-on-year median estimate forecast by a Bloomberg survey.
Reserve Bank data show that the deceleration in credit demand growth was dragged by the investment and bills category, which contracted 2.2% month on month and 8.5% year on year. All the other components grew on a monthly and annual basis, supported by normalisation of economic activity and favourable interest rates.
Growth in instalment sales and leasing finance remained robust at 8% year on year, mainly reflecting strong vehicle sales, while growth in mortgages was also solid at 5.4% from 5.3%.
Data show that growth in other loans and advances, which includes unsecured credit to households and companies, also remained strong at 8% year on year.
Corporate credit rose 7.4% on an annual basis, with demand across all the subcomponents expanding. Overdrafts and credit cards grew 19.7% and 17.1% respectively, while general loans and advances accelerated 7.8% from 7.1%. Nedbank economist Johannes Khosa said this reflects an improvement in capital investment.
PRE-EMPTIVE BUYING
Household credit rose 6.4%. This was mainly driven by assetbacked credit that was supported by improved income and pre-emptive buying of big-ticket assets ahead of the expected series of interest rate hikes.
Demand for instalment sales, which includes vehicle finance, grew by a robust 8.6% year on year, while mortgages rose by 6.7%. Demand for overdrafts, general loans and credit cards also increased.
Khosa said credit growth will continue to rise off a low base in the coming months before starting to moderate towards the end of the year as the base effect diminishes, ending the year at about 5%. He said though overall credit extension was positive, the upside will be partly contained by rising inflation and interest rates and slow employment growth, which will erode disposable income, weigh on consumer confidence and cause households to be cautious of taking on more debt.
According to the Reserve Bank’s quarterly bulletin released on Tuesday, demand for credit increased in most of the economic sectors from the third quarter of 2021 to the first quarter of 2022 as economic activity recovered.
The Bank said credit extension to households and to the wholesale and retail trade sectors increased notably as consumption expenditure increased amid the easing of Covid-19 restrictions.
The Bank said growth in credit extension to the household sector continued to expand at a steady pace of about 5.6% in the second half of 2021 before accelerating to 6.3% in April this year.
Credit extension to companies was mainly driven by general loans and the use of overdraft facilities for operational activities in the early months of 2022, the Bank said.