27 Feb 2018

PSCE update: Growth in private sector credit extension decelerated in January

Annabel Bishop

Chief Economist

Figure 1: Private sector credit: contributions to total credit growth
  • Growth in private sector credit extension moderated to 5.5% y/y in January 2018 from 6.7% y/y in December 2017, on account of a deceleration in the rate of both household and corporate credit growth.
  • Household credit growth eased to 3.7% y/y in January from a prior 3.8% y/y whilst corporate credit growth slowed to 7.1% y/y from 9.1% y/y in December.
  • The disaggregation of the total credit data showed that the sharpest slowdown was in the unsecured credit category, to 2.9% y/y from a prior 6.1% y/y. Unsecured credit growth also moderated in 2017 as a whole, to 7.1% y/y from 9.4% y/y in 2016.
  • This was a function of tighter credit criteria applied by both banks and non-bank credit providers (see figure 3). Additionally, households’ credit demand has been curtailed by depressed consumer confidence, rising unemployment and deleveraging. In the case of corporates, there has been an increased reliance on corporate bond issuance instead of bank credit.
  • In January, mortgage advances grew by 4.6% y/y compared to 4.2% y/y in December. The faster growth was underpinned by the corporate sector, likely on an increase in mortgage advances for commercial property.Mortgage advances extended to households remained modest at around the 3.0% y/y mark.
  • Instalment sales credit and leasing finance, which represent vehicle finance, eased to 4.7% y/y in January from 5.1% y/y in December. This was consistent with the weaker start to 2018 in actual aggregate new vehicle sales.
  • The momentum in credit extension this year will be determined by the demand for credit from households and corporates which in turn will be influenced by a recovery in consumer and business sentiment and so in private consumption and fixed investment rates (see figures 4 and 5).
  • On the supply side, an easing in credit criteria by banks could be supported by reduced risk perceptions in view of the modestly improving economic outlook.
Figure 2: Growth in the components of PSCE
Figure 3: Credit standards for approving loans
Figure 4: HCE (private sector spending) growth vs consumer confidence
Figure 5: Business confidence and private fixed investment