South African businesses were slightly discouraged from taking loans in May as investment slumped in spite of the economy rebounding to pre-pandemic levels in the first quarter.
Data from the South African Reserve Bank (Sarb) yesterday showed that private sector credit extension (PSCE) grew below estimates in May, dragged down by the investment and bills category.
The Sarb said private sector credit decelerated on an annual basis to 5.3 percent in May, from a revised 5.9 percent in April on a deceleration in credit extended to the corporate sector.
Though this reading marked the 11th consecutive month of increase in private sector credit, it was less than market expectations of 5.7 percent and the softest pace since February.
However, the Sarb said all the other components grew on a monthly and annual basis, supported by normalisation in economic activity and still favourable interest rates.
Bank credit, which excludes the highly volatile investment and bills category, rose by 6.9 percent, the highest since October, 2019 lifted by both households and corporate loans.
Corporate credit rose by 7.4 percent year-on-year, with demand across all the sub-components expanding.
Household credit, which rose by 6.4 percent from a year ago, was mainly driven by asset-backed credit which was supported by improved income and pre-emptive buying of big-ticket assets ahead of the expected series of interest rate hikes.
Investec economist Lara Hodes said household credit might struggle in the months ahead, as a result of rising interest rates by the Sarb’s tight monetary policy to curb high inflation.
“Upwards inflationary pressures which have seen the Sarb raise rates by 125 basis points since November, 2021 with further tightening expected will weigh heavily on already indebted households struggling with the rising cost of living,” Hodes said.
“Indeed, rising food prices continue to dilute disposable incomes, while unemployment remains at critically high levels.”
The demand for instalment sales, which includes vehicle finance, grew by a robust 8.6 percent year-on-year, while mortgages rose by 6.7 percent.
The demand for overdrafts, general loans and credit cards also increased.
Nedbank economist Johannes Khosa said credit growth would continue to rise off a low base in the coming months before starting to moderate towards the end of the year as the base effect diminishes, ending the year at around 5 percent.
Khosa said a modest improvement in household finances would, somewhat, still support household credit demand.
“However, the upside will be partly contained by rising inflation, rising interest rates, and slow employment growth, which will erode disposable income, weigh on consumer confidence and cause households to be cautious of taking on more debt,” Khosa said.
“Corporate demand will be driven by some improvement in private sector fixed investment, and as some of the businesses affected by the floods in KZN start to rebuild.
“However, companies will generally remain wary of accelerating capital expenditure aggressively due to electricity shortages, slow progress on structural reforms, and ample spare capacity in some industries.”
Meantime, expansion in the broadly defined M3 measure of money supply expanded 7.29 percent in May, slowing from a marginally revised 7.49 percent rise in April.
BUSINESS REPORT