Card debt growth slumps

Flow slows to a trickle

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN

NOWHERE IS con­sumers’ un­will­ing­ness to splurge out money they don’t have as clear as from the fig­ures on growth in credit card debt. The rate of growth has slumped to just 4,25% from lev­els well above 35% in 2007 and reach­ing 50% in 2006. Be­fore in­ter­est rates be­gan ris­ing in June 2006, banks were hand­ing out credit cards like candy to Amer­i­can kids on Hal­loween. Sim­i­larly, other credit taps were wide open and flow­ing, help­ing to un­der­pin a hous­ing boom.

The cur­rent pic­ture is rad­i­cally dif­fer­ent. Mort­gage credit growth is now grow­ing at only 13,2%, well down from a 30,9% peak in Oc­to­ber 2006. Over­all, pri­vate sec­tor credit de­clined by 0,6% month-on-month in De­cem­ber 2008, or a sub­stan­tial R11,3bn. Stan­lib econ­o­mist Kevin Lings says it’s the first monthly de­cline in to­tal pri­vate sec­tor credit since May 2004.

Some economists point out that banks’ un­will­ing­ness to pro­vide credit without bor­row­ers putting down a de­posit first is hav­ing an ef­fect on the credit growth num­bers, in­ten­si­fy­ing the ef­fects of still high in­ter­est rates. The SA Re­serve Bank started cut­ting the in­ter­est rate in De­cem­ber by 50 ba­sis points and at the time of writ­ing last week the rate was ex­pected to be cut again.

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