Demand for credit among South African households is dropping in South Africa, while banks are tightening lending conditions amid the continued challenging economic environment.

Meanwhile, South African businesses are taking out more credit as the investment environment declines.

Private Sector Credit Extension (PSCE) grew from 4.39% y/y in August to 4.60% y/y in September – this was notably higher than the Bloomberg consensus of a 3.5% lift. On a m/m basis, PSCE grew 1.5.

Credit uptake from corporations – which makes up more than 50% of the PSCE – increased 2.7% m/m, jumping from 3.1% y/y in August to 3.8% in September.

The unsecured loans and advances – which makes up roughly 45% of the credit given to corporates – increased significantly from 2.6% y/y in August to 5.5% y/y in September.

The acceleration in company loans was also driven by a sharp increase in credit card usage from 6.9% y/y in August to 19.1% y/y in September.

That said, the investment category contracted further from -1.0% y/y to -2.6% y/y.

“Indeed, business confidence remains lacklustre. Persistent load shedding, political uncertainty and the high-interest rate environment continue to suppress sentiment,” Investec’s Lara Hodes said.

On the other hand, credit demand from households dropped from 5.9% y/y to 5.5% y/y.

“Consumers remain highly constrained grappling with high-interest rates and elevated unemployment, which in turn continues to weigh heavily on consumer confidence,” Hodes said.

Mortgage advances – which make up roughly 59% of household credit demand – dropped from 5.4% y/y to 5.0% in September.

“This is in line with the results of the BER’s latest building survey for Q3.23, which shows that confidence amongst residential builders slumped further in the third quarter. Specifically, ‘the outlook for work deteriorated as based on respondents’ own expectations.’”

The investment sales category – which makes up almost 18.0% of all household credit, dropped from 7.4% y/y to 7.1% y/y in September. Naamsa’s latest vehicle sales stats support this after dropping 8.4% y/y in September.

Expectations

The Nedbank Group Economic Unit said that it expects credit growth to remain modest in the next coming months, dropping from 9.2% in December 2022 to 6% in December 2023 amidst the challenging economic environment.

“The downward pressure will come from the weakness in both households and companies’ demand,” Nedbank’s economists said.

“On the household side, the cumulative impact of the interest rate hikes will continue to filter through the economy, keeping debt service costs high and compelling households to be cautious of spending and
incurring additional debt.”

“At the same time, banks will be cautious of extending loans given the rising payment defaults.”

That said, corporate credit will benefit from renewable energy projects as more companies try to isolate themselves from Eskom’s unreliable electricity supply.

Corporate credit will still, however, be contained by poor growth projections, high costs and declining profits, forcing companies to cut back on capital expenditure projects.

“We forecast bank credit growth to remain subdued in early 2024 before gradually picking up pace during the second half of next year as the interest rates ease and the economy improves slightly,” Nedbank’s economists said.