South African households and businesses’ appetite to take out loans is expected to continue moderating for the remainder of 2023, at least until there is certainty over interest rates, after falling to a 13-month low in June on weak economic activity.
This comes as the South African Reserve Bank (SARB) this month left the door open after it paused its benchmark lending rate at a 14-year high of 8.25%, following 10 consecutive increases since the hiking cycle began in November 2021.
Data from the Reserve Bank on Monday showed that private sector credit slowed by 6.25% year-on-year in June, matching market forecasts after a 6.85% growth in May.
This marked the sixth consecutive month of growth in the private sector, albeit at a moderate pace since May 2022.
The volatile bills and investment category contracted by 4.2% month-on-month, resulting in a year-on-year contraction of 5.4%.
Within asset-backed credit, instalment and leasing finance continued to rise to multi-year highs, up 9.9% year-on-year, the highest since July 2014.
Investec economist Lara Hodes said the decline in the investments category, which makes up around 14.0% of credit extended to corporates, signalled volatile conditions which left businesses pessimistic.
Hodes said although inflation had started to ease, offering some reprieve for consumers, conditions were anticipated to remain trying in the short term.
“Indeed, business confidence remains highly subdued, having slumped further in the second quarter of 2023, underpinned by South Africa’s myriad of domestic challenges,” Hodes said.
“The most prevalent being the persistent electricity supply disruptions which hinders optimal economic activity, weighing on costs and decreasing profitability.”
The SARB said household credit demand eased to 6.5% in June from 6.7% in May, the lowest it has been since a year ago.
The slowdown was driven by an easing in the unsecured credit categories, with overdrafts moderating to 2.2% from 4.5% in May.
Although personal loans have remained resilient, it also eased to 7.3% in June following growth of 8% in May.
Home loans also fell to 5.8%, while instalment sales and leasing finance was steady at 7.6% as mortgage advances declined to 6.1% in June from 6.2% recorded in May.
The elevated interest rate environment and low confidence has impacted the property sector in general.
Credit cards was the only category that edged higher, increasing to 9.2% in June from 8.9% in May.
Nedbank economist Liandra da Silva said households would be cautious to take on additional credit during this period as the cumulative interest rate hikes since November 2021 impacted their ability to service both new and outstanding debt.
Da Silva said, furthermore, weak growth prospects and the subdued labour market would contain income growth and depress consumer confidence.
“Corporate credit demand has shown resilience over the past few months, but it will moderate further on weak domestic and global growth prospects,” she said.
“However, ongoing investment in renewable energy projects will support the upside. We forecast growth in bank credit to end the year at around 5%.”
Meanwhile, growth in broad money supply (M3) edged up by 11.1% year-on-year in June, coming in significantly above market expectations of 9.8%.
Over the month, growth in M3 eased slightly to 0.2%, down from 0.5% in May.
The slowdown in M3 was driven by net claims on government and net foreign assets which declined by R57 billion and R51bn, respectively.
However, the declines were offset by a jump of R68.5bn and R48.1bn in net other assets and liabilities and private sector claims, respectively.
BUSINESS REPORT