04 Jul 2017

PSCE update: Private sector credit extension lifted in May on corporate credit growth, with household credit growth remaining muted

Annabel Bishop

Chief Economic

Growth in private sector credit extension rose to 6.7% y/y in May from 5.9% y/y in April, on a lift in corporate credit extension to 10.1% y/y from 8.5% y/y previously.  

PSCE update

Within the corporate credit category, growth in general loans and advances, which comprise nearly 50% of total corporate credit, accelerated to 13.2% y/y in May from a prior 10.8% y/y.

According to the SARB’s Q1.17 Quarterly Bulletin, “(g)eneral loans to companies include term loans and structured loan funding to nonfinancial companies, and to financial companies involved in, among other things, securities trading, life insurance, fund management and vehicle financing.”

Mortgage advances, which comprise 22.1% of total corporate credit, picked up pace to 8.2% y/y in May from 7.1% y/y in April, but the average growth in Q2.17 so far is still weaker than in the prior quarter and in 2016, reflecting the slowdown in commercial property development.

Going forward, corporate credit growth is expected to remain affected by depressed business confidence and the weak broader economic climate.

In May, household credit extension moderated slightly to 2.8% y/y from 2.9% y/y in April. Growth in mortgage advances, which makes up 60% of household credit, remained pedestrian at the 3.0% y/y mark, whilst unsecured credit growth eased to 4.6% y/y from 4.8% y/y.

The rate of credit extended to households is expected to remain muted, on both supply and demand side considerations. Demand side factors include depressed consumer confidence, high unemployment, weak income growth and deleveraging.

On the supply side, credit criteria have tightened (see figure 3). According to the EY/BER Q2.17 Financial Services survey, “(r)etail banks tightened their credit standards relative to the first quarter due to, among other things, the credit rating downgrades and the recession that hit the economy at the end of the first quarter”.

The SARB expects that “(c)redit conditions could remain relatively tight for the household sector in the foreseeable future (…) as a significant proportion of credit active consumers are struggling to service their existing debt.” Data from the National Credit Regulator confirms that over half of credit active consumers are in arrears (see figure 4).

Modest rates of household credit growth have been a restraining factor on household consumption expenditure, and a credit fueled recovery in consumption expenditure is not expected. As such, meaningful demand led inflationary pressures should remain absent.

PSCE update
PSCE update
PSCE update