Johannesburg – The rate of lending to both households and corporates slowed in September, data from the South African Reserve Bank (SARB) revealed.
According to the data, released on Monday, private sector credit extension slowed to an annual rate of 5.6% in September, from 6% in August.
Investec economist Kamilla Kaplan highlighted that the rate of borrowing by corporates has come down from an annual rate of 15.9% in 2015, to 9.1% in 2016 and 7.5% reported in September 2017. Particularly, growth in general loans and advances which make up nearly half of corporate credit rose 8.4% in September. This is slower than rates recorded in 2016 and 2015, which was 13.8% and 18.9% respectively.
“This slowdown has been linked to the effects of persistently depressed business confidence,” explained Kaplan.
Mortgage advances, which comprises 22% of corporate credit rose by 7.5% in September, compared to growth above 10% in both 2015 and 2016, she said. “This has been linked to a slowdown in commercial property development.”
Kaplan explained that the depressed business confidence, challenging economic environment may hamper corporate investment and credit demand. SARB also explained in its data that some large companies have turned to bond issuance instead of bank credit.
Household credit growth increased by 3.3% in September. Mortgage advances, which make up the majority (60%) of household credit, grew at 3%.
Unsecured credit, which makes up less than a quarter (23%) of household credit, eased to 3.5% in September, compared to a peak of 31.6% reported in 2012, said Kaplan.
The slowdown in credit growth reflects weaker consumption rates and efforts to reduce debt, she explained.
“Credit conditions applied by retail banks remain relatively tight and the prospect of interest rate increases will likely impact the demand for credit,” she added.
The mini budget has also raised concerns of possible credit downgrades given the growing government debt burden. This also reduces the scope of the SARB reducing interest rates, she concluded.
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