- Private sector credit extension growth decelerated to 3.9% in August.
- The slowdown reflects cautiousness of households and businesses to borrow amid an uncertain economic environment.
- Credit extension growth is expected to remain weak in the medium term.
Both corporate and household credit growth slowed during August, data from the SA Reserve Bank shows.
The private sector credit extension figures were released on Wednesday. It showed that credit extension growth decelerated to 3.9% year-on-year (y/y) in August. It had peaked at 7.7% y/y in March, noted Investec economist Kamilla Kaplan.
Corporate credit growth decelerated to 4.6% y/y in August from 6.7% y/y in July. It accounts for 56.1% of total credit, Kaplan said. Household credit growth slowed to 3% y/y from a prior 3.2% y/y.
"The slowdown in household credit growth is reflective of depressed consumer confidence, weak income and employment prospects and a possible tendency towards precautionary savings," said Kaplan.
"Similarly, depressed business confidence, lower turnover in some industries and weak capital spending are constraining corporate credit growth," Kaplan added.
FNB economists had expected weak growth in household credit extension given rising unemployment, weak real income growth and a deterioration in consumer credit standing and "prudent" lending from financial institutions, it said in a note issued ahead of the release. The most recent jobs data from Stats SA shows that 2.2 million jobs were shed during the second quarter.
"While we acknowledge the stronger-than-expected recovery in housing market activity, we expect lenders to have remained relatively conservative.
"Furthermore, the waning pandemic-induced borrowing by the corporate sector suggests further weakening in private sector credit extension in the near term," FNB said. The bank expects weak growth in private sector credit extensions in the medium term.
The Reserve Bank noted in its September quarterly bulletin - for the second quarter - that credit extensions had been decelerating despite interest rate relief and a variety of other measures to ease liquidity conditions in support of credit extensions to alleviate the effects of Covid-19.
"These measures include the R200 billion Covid-19 Loan Guarantee Scheme. However, the uptake has been slow, with R14.5 billion extended by the end of August," said Kaplan. Citing the Banking Association of South Africa, Kaplan said that business owners are reluctant to take on more debt given uncertain business conditions and a weak economic outlook which would impact their ability to generate income to repay loans.
Compiled by Lameez Omarjee