Credit demand in South Africa is down, but the Nedbank Group Economic Unit believes that the worst is over.
According to Nedbank’s latest assessment of the broad money supply and credit, credit demand weakened further in July. Growth in private sector credit extension (PSCE) dropped from 4.3% in June to a five-month low of 3.5% in July, below Nedbank’s forecast of 4.3%.
Although the weakness was across almost all subcategories, the most significant drag was the ‘investment and bills’ category, which dropped by 1.1% month-on-month (mom), dragging the annual growth rate to 0.4% from 1.4%.
Growth in instalment sales and leasing finance also dropped to 7.7% from 9.3%, highlighting the weakness in the vehicle sales market.
Other loans and advances, such as unsecured credit to households and companies, also moderated, while annual mortgage growth was steady at 2.9% yoy for the third straight month.
Growth in loans and loans (i.e. bank credit excluding bills and investments) also decelerated from 4.5% to 3.8%.
Although household and company credit moderated, corporate credit’s weakness was more profound, dropping by 1.4% of mothers. This brought the growth rate down from 5.7% to 4.3%.
Every subcategory, except commercial mortgages, weakened.
Growth in general loans, usually used to finance capital spending, also came in at 4.8%, down from 6.3%. Overdrafts also contracted by 2.4% after two straight months of growth.
Commercial mortgages, however, grew by 3.7% – the fastest growth in half a year.
“Household credit continued its gradual deceleration, with the yoy growth rate easing to 3.2%, the weakest since November 2020, reflecting the impact of higher interest rates, weak consumer confidence, strained household finances and tighter lending standards among commercial banks.”
Amid the increase in credit impairments due to 15-year high interest rates, banks in South Africa have introduced stricter lending criteria to minimise bad debts.
The weakness in household credit was across the board, with the subcategories either contracting
or growing slower.
Growth in home loans dropped to a four-month low of 2.5% as personal loans contracted for the fifth straight month, down by 0.9%.
Instalment sales & leasing finance and overdrafts also moderated in July.
Credit card usage, however, stayed robust, growing 10.6% yoy.
Although the outlook for credit growth remains subdued, Nedbank’s economists said that the worst is probably over.
“Lower inflation will boost disposable income, while the SARB will start cutting interest rates in September.
“The two-pot system will kick in on 1 September, giving households access to a portion of their retirement funds. These will somewhat ease the strain on household finances, boosting consumer confidence and spending, while lower interest rates will boost appetite for credit.”
“Corporate credit demand will also likely remain firm due to last year’s lower base and increased activity in the renewable energy sector.”
“Business confidence will also be boosted by the optimism of structural reforms, which will probably encourage the private sector to increase capital investment spending.”
Nedbank expects credit growth to start bottoming out in August.
It should increase softly towards the end of the year and will accelerate to 6% in 2025.
Read: The two-pot system is here – fund members in South Africa beware
