Households reluctant to increase debt — Bank figures
SOUTH African households are avoiding adding too much debt, opting to use the current low interest rate environment to service debt as opposed to taking up new debt.
Figures released by the Reserve Bank yesterday showed that growth in the demand for credit by households increased by 7,7% in June this year compared to the same month last year, from 7,4% in May.
Growth in demand for credit by households, although modest, remains in positive territory and cements the view that most of the economic growth this year will be driven by consumers.
Standard Bank
economist Shireen Darmalingam said despite a recent interest rate cut, household credit demand growth could be modest this year. “We caution that this trend may fall in the months ahead as consumer confidence continues falling,” she said.
A Bureau for Economic Research survey showed that consumer confidence fell to -3 points in the second quarter of this year.
Absa Capital economist Ilke van Zyl said the company did not believe the reduction of lending rates by 50 basis points would do much to encourage households to take up more credit. “The recent stimulus from the bank will not necessarily lead to a renewed surge in household credit demand. It’s very lacklustre and will keep the headline PSCE (private sec- tor credit extension) figure low,” she said. “Going forward, we don’t see any drastic change in the recent trend,” Ms van Zyl said.
Instalment sales and mortgage advances continued to post growth last month, the figures showed.
Growth in mortgage advances in particular looks set for modest gains, with Standard Bank expecting this category to keep overall credit extension growth under pressure through to the year-end.
Absa Home Loans property analyst Jacques du Toit said that although the mortgage interest rate was cut by 50 basis points to 8,5% this month, mortgage advances growth was forecast to remain in single digits for the rest of this year, “set to be impacted by economic trends, household finances and consumer confidence, which will affect the property market.”
Figures also showed that corpo- rations continued to accumulate cash, which Ms Darmalingam said was a sign of uncertain economic conditions rather than an improvement of local economic conditions.
Overall, private sector credit extension growth rose to 8,7% year on year last month from 8,3% in May. Nedbank economists Isaac Matshego and Dennis Dykes said while the recent interest rate reduction would support demand for credit, it was not expected to have a considerable boost as the overall economy was losing momentum.
“On current evidence, we think rates will remain stable well into 2013, when some reversal in policy easing then becomes possible,” Nedbank said.