Growth in private sector credit extension declines sharply

Growth in private sector credit extension in South Africa decelerated sharply to 5.1% in April - against the market’s forecast of 6.1% - from 6.0% in March, Nedbank said on Wednesday.

According to the bank, the slowdown in credit growth was due to the "investment and bills" category as well as the "other loans and advances" category, which both dropped sharply over the month.

"Credit demand is still likely to improve gradually in the months ahead on better economic growth and confidence, with modestly lower interest rates and softer inflation helping affordability," commented Nedbank.

"The figures indicate that credit demand remains modest despite the recent spike in both business and consumer confidence following the positive political changes in December."

Even though credit growth is expected to improve as the economy picks up in the coming months, helped by a favourable global economic climate and better local conditions, Nedbank still thinks that the SA Reserve Bank's Monetary Policy Committee will delay hiking rates for as long as possible given the relatively weak economy and a mostly benign inflation outlook.

Nedbank forecasts that rates will remain unchanged into the second half of 2019 before a mild upward cycle starts.

Investec economist Lara Hodes pointed out that the decline in private sector credit extension to 5.1% y/y in April 2018 from 6.0% y/y in March was on the back of a notable decline in credit to the corporate sector.
Credit extended to corporates dipped to 5.9% y/y in April compared to growth of 7.7% y/y in March.

Household credit balances

Almost 77% of total South African household credit balances are now mortgage and instalment sales repayments, while 23.7% makes up the repayment of unsecured debt.

Household secured credit balances - mortgage and instalment sales balances - increased by 3.8% year-on-year (y/y) to a total of R1 196.2bn in the first four months of the year, according to Jacques du Toit, property analyst at ABSA.

He said on Wednesday that mortgage balances growth was much in line with the trend the past few months, with growth in instalment sales balances at 5.7% y/y at the end of April.

Growth in the value of household unsecured credit balances totalled R370.6bn and accelerated further to 5.1% y/y up to the end of April from a recent low of 3.1% y/y at the end of December last year, he pointed out.

General loans and advances balances - mainly personal loans and micro finance - makes up 58.6% of unsecured balances. This increased by 5.3% y/y to R217.1bn up to the end of April. According to Du Toit, growth in this component of unsecured credit balances has been on a rising trend since bottoming at 2.7% y/y in December last year.

Growth in household credit balances is forecast to be just above 4% by the end of the year, while household mortgage balances are projected to grow by almost 4% this year, according to Du Toit.

This is his view, based on trends and prospects for the SA economy, household sector finances and consumer confidence.

He said growth in the value of outstanding credit balances in the SA household sector was marginally higher at 4.1% year-on-year (y/y) up to the end of April 2018 from 3.9% y/y at the end of March.

Secured credit balances growth remained relatively stable, he added, whereas growth in unsecured credit balances accelerated somewhat further up to the end of April.

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