South African households and businesses’ appetite to take out loans grew to a one-and-a-half year high in February as general economic conditions broadly normalised under Adjusted Level 1 Covid-19 lockdown.
However, economists have warned that the ongoing interest rates hiking cycle could make consumers wary of piling up more debt as employment prospects also become fickle with the rising jobless rate.
The SA Reserve Bank (SARB) yesterday said private sector credit extension rose to 3.62 percent year-on-year in February, from a revised 3.11 percent increase a month before.
This reading was above market expectations, marking the eighth straight month of increase in private sector credit and the strongest rise since August 2020.
The SARB said that credit extended to corporates, which comprises over half of the total, continued on its upwards trajectory, rising by 2 percent in February compared to 1.2 percent in January.
A disaggregation of the corporate data showed the unsecured segment, comprising mainly general loans and advances which is the largest component within the corporate lending space, rose further month-on-month.
This is a positive sign for business and consumer confidence on the trajectory of the economic recovery, as trading conditions normalised with further easing of restrictions.
Overdrafts continued to moderate, but credit card usage recorded a gain of 21.7 percent, still high but slowing gradually from the robust 35.6 percent recorded in August 2021.
Investec economist Lara Hodes said the corporate sector, which was particularly affected by the stringent lockdown restrictions, was gaining momentum.
“However, stronger business confidence is needed to drive investment,” Hodes said.
“The hastened implementation of critical reforms, drastically improving the ease of doing business in this country is imperative.”
Data showed that credit extended to households increased modestly to 5.6 percent in February, following January’s 5.5 percent lift, driven by asset- backed finance.
Higher demand for mortgages, which comprise around 60 percent of all household credit, grew by a further 6.9 percent in February, followed by vehicle finance at 5.7 percent, credit cards at 3.5 percent, and general loans with 2.5 percent.
It is believed that the low-interest rate environment and work from home dynamic, which buoyed residential property demand earlier on in the pandemic, had subsided.
Nedbank economist Johannes Khosa said credit growth would likely continue to improve off a low base in 2022 as modest improvements in household finances will support household loans. Khosa, however, said the upside would be partly contained by rising inflation, which will hurt disposable income.
“At the same time, rising interest rates and poor employment prospects will weigh on consumer confidence, causing households to be cautious of taking more debt, and perhaps rather opting to pay for the existing credit, while debt service costs are still low,” he said.
Khosa said corporate demand was also expected to accelerate off a low base, supported by some improvement in fixed investment, buoyed by a flurry of renewable energy projects.
“However, companies will remain generally wary of accelerating capital expenditure aggressively due to electricity shortages, slow progress on structural reform and ample spare capacity in some industries.”
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE