PSCE update: Private credit growth remains modest in line with subdued economic activity, depressed confidence and tight credit conditions

28 Sep 2017

Annabel Bishop

Chief Economic

In August, the rate of private sector credit extension lifted to 6.0% y/y from 5.7% y/y in July, on a modest rise in corporate credit to 8.2% y/y from a prior 7.8% y/y.

Private credit extension
  • In August, the rate of private sector credit extension lifted to 6.0% y/y from 5.7% y/y in July, on a modest rise in corporate credit to 8.2% y/y from a prior 7.8% y/y. Household credit growth remained subdued at 3.4% y/y in August versus 3.3% y/y in July. 
  • Within the corporate credit category, the rate of increase in general loans and advances, which comprise nearly 50% of total corporate credit, remained steady in August at 7.9% y/y. Growth in this category has slowed from nearly 20% y/y in 2015 to 14% y/y in 2016 and 10% y/y in H1.17. 
  • 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 
  • Mortgage advances which is the other sizeable (22%) component of corporate credit, rose by 8.46% y/y in August from 8.75% y/y in July and has moderated from double digit growth in 2016.  This has been linked to a slowdown in commercial property development. 
  • Within the household credit category, growth in mortgage advances, which makes up 60% of household credit, remained pedestrian in the vicinity of the 3.0% y/y mark. 
  • Unsecured credit, which comprises 23% of household credit, eased to 3.47% y/y from a prior 4.07% y/y. 
  • In real terms, household credit extension remains negative on both supply and demand side factors.
  • On the supply side, credit conditions have tightened whilst on the demand side, depressed consumer confidence, rising unemployment and deleveraging have diminished the uptake of credit. The household debt to disposable income ratio has steadily declined to 72.6% in Q2.17 from levels closer to 80% in 2013 (see figures 3 and 4). 
  • Modest rates of household credit growth will continue to be a restraining factor on household consumption expenditure which is forecast to lift by just 1.0% y/y in 2017 compared to 0.8% y/y in 2016. 
  • As such, meaningful demand led inflationary pressures should remain absent (see figure 5). This, coupled with the expected further moderation in supply side inflationary pressures, could see the SARB lowering its inflation forecasts and possibly reducing the policy rate again.
Figure 2: Growth in the components of PSCE
Figure 3: Credit standards for approving loans
Figure 4: Household debt and debt servicing to disposable income ratios
Figure 5: CPI inflation and credit growth