Corporate credit under pressure

2008-06-03 00:00

The rising cost of borrowing, higher input costs, waning consumer demand and the ongoing energy crisis are all likely to weigh heavily on corporate credit demand as businesses increasingly become reluctant to take on further debt.

In addition, nine interest rate hikes since June 2006 and the rising cost of living have driven consumer credit demand lower — particularly in relation to hire purchase and leasing — according to the latest private sector credit extension figures.

On the whole, credit growth declined fairly significantly in April 2008 to 19,6% from 22,6% the previous month, well over two percentage points beyond analysts’ forecasts.

Growth in asset-based credit dropped to a four-year low and mortgage growth is now starting to show further evidence of moderation.

New mortgage loans granted remain under severe pressure.

Year-on-year growth in M3 money supply, viewed as the country’s broad money supply indicator, slowed to 21,1% year on year in April.

Economists have warned that growth in credit demand — which remains at historically high levels — may take some time to cool off to much lower levels.

They argue that consumers may make use of different credit instruments in order to finance consumption.

According to experts, corporates are now heading for a tougher operating environment.

Corporates have in the past relied on growth in investment spending and corporate-restructuring.

kavith@witness.co.za

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