10- year low in growth of private sector credit
The Banking Association of SA says business owners are reluctant to incur more debt
THE SOUTH African Reserve Bank ( SARB) said yesterday that growth in private sector credit in August slowed to 10- year low amid the economic downturn caused by the Covid- 19 crisis.
Data from SARB showed that private sector credit decelerated to 3.87 percent year- on- year following a 5.12 percent growth in July. This was the weakest rise in private credit since August 2010.
This year, private sector credit extension growth peaked at 7.7 percent year- on- year in March.
SARB said that corporate credit growth, which comprises 56.1 percent of total credit, decelerated to 4.6 percent in August from 6.7 percent in July. Household credit slowed to 3 percent in August from 3.2 percent in July.
SARB recently noted that the deceleration in credit growth has occurred “despite substantial interest rate relief and a variety of measures to ease liquidity conditions in support of credit extension to alleviate the effects of the Covid- 19 pandemic”.
These measures include the R200 billion Covid- 19 Loan Guarantee Scheme for affected businesses and a 300 basis point cut in interest rates so far this year.
However, the uptake of the Covid19 Loan Guarantee Scheme has been slow, with only R14.5bn extended by the end of August.
The Banking Association of South Africa said business owners were reluctant to incur more debt.
It said uncertain business condi
tions and a weak economic outlook hampered the ability of businesses to generate sustainable income, from which they had to repay their loans.
Investec’s Kamilla Kaplan said the economic downturn had resulted in a plunge in consumer and business confidence, as real gross domestic product plummeted by a record 51 percent in the second quarter.
Consumer confidence rose to a still depressed - 23 points in the third quarter, after hitting a 35- year low of - 33 in the prior period.
Business confidence remained subdued in the third quarter, but rebounded to 23 points from its historic low of 5 index points in the second quarter.
“The slowdown in household credit growth is reflective of depressed consumer confidence, weak income
and employment prospects and a possible tendency towards precautionary savings,” Kaplan said.
“Similarly, depressed business confidence, lower turnover in some industries and weak capital spending are constraining corporate credit growth.”
Meanwhile, expansion in the broadly defined M3 measure of money supply rose to 10.86 percent in August, from 10.54 percent in July.