29 Oct 2017

PSCE update: Private credit extension moderates in September with the rates of both household and corporate credit slowing

Annabel Bishop

Chief Economic

Private sector credit extension moderated to 5.6% y/y in September from 6.0% y/y in August.

Private credit extension and nominal GDP
  • The rate of credit uptake by corporates has moderated from 15.9% y/y in 2015 and 9.1% y/y in 2016 to 7.5% y/y in September. Growth has slowed across all of the main corporate credit categories and notably, growth in general loans and advances, which comprise nearly 50% of total corporate credit, rose by 8.4% y/y in September compared to 13.8% y/y in 2016 and 18.9% y/y in 2015. This slowdown has been linked to the effects of persistently depressed business confidence.
  • Mortgage advances that is the other sizeable (22%) component of corporate credit, rose by 7.5% y/y in September compared to growth of above 10% y/y in 2015 and 2016. This has been linked to a slowdown in commercial property development.
  • According to the SARB, depressed business confidence, the challenging economic backdrop and “a tightening in public sector procurement may hamper corporate investment, and consequently also credit demand, for an extended period of time.” Moreover, “some large companies turned to bond issuance as an alternative to bank credit.”
  • Household credit growth increased by 3.3% y/y in September, similar to the prior two months. Growth in mortgage advances, which makes up 60% of household credit, remained pedestrian in the vicinity of the 3.0% y/y mark compared to rates closer to 30% y/y prior to the 2008/09 recession.
  • Unsecured credit, which comprises 23% of household credit, has similarly eased to 3.5% y/y in September from a peak of 31.6% y/y at the end of 2012.
  • Slow rates of consumer credit growth are reflective of weaker consumption rates and a preference for deleveraging. This is evidenced in the decline of the household debt to disposable income ratio to 73% from rates closer to 90% in 2008 (see figure 3).
  • Credit conditions applied by retail banks remain relatively tight and the prospect of interest rate increases will likely impact the demand for credit (see figure 4). The Medium Term Budget Policy statement reflects a deterioration in government debt and deficit metrics which increases the probability of a credit rating downgrade and so reduces the scope for the SARB to reduce interest rates.
Figure 2: Growth in the components of PSCE
Figure 3: Household debt and debt servicing to disposable income ratios
Figure 4: Credit standards for approving loans