29 Jan 2018

PSCE update: The rate of private credit extension moderated to an average of 5.9% y/y in 2017

Annabel Bishop

Chief Economist

From an average of 6.9% y/y in 2016

Figure 1: Private sector credit: contributions to total credit growth
  • Private sector credit extension increased to 6.7% y/y in December from 6.5% y/y in November.
  • The pick-up in the growth rate was underpinned by a faster rate of corporate credit of 9.2% y/y in December versus a prior 8.8% y/y. The rate of household credit extension remained steady at 3.8% y/y in December.
  • For the 2017 year as a whole, the growth in private sector credit extension declined to an average of 5.9% y/y from an average of 6.9% y/y in 2016.
  • Corporate credit extension slowed to an average of 8.7% y/y in 2017 from an average of 11.4% y/y in 2016. The rate of household credit extension lifted marginally to 2.6% y/y in 2017 from 2.3% y/y in 2016, with low statistical base factors having a partial effect. These base factors pertained to the technical correction resulting from the inclusion of the restructured African Bank data in April 2016. This effect was most visible in the household unsecured credit category (see figure 4).
  • The disaggregation of the total credit data showed a slowdown in mortgage advances to 4.5% y/y in 2017 from 5.7% y/y in 2016. The SARB has previously noted that since 2015 there has been a declining growth trend in mortgage advances for commercial property whilst growth in mortgage advances for residential property has essentially stagnated around the 3% y/y mark.
  • The moderation in total unsecured credit extension to 7.1% y/y in 2017 from 9.4% y/y in 2016, was a function of tighter credit criteria applied by banks and in the case of corporates, an increased reliance on corporate bond issuance instead of bank credit.
  • Instalment sales credit and leasing finance, which represent vehicle finance, saw a modest lift in the combined growth to 2.9% y/y in 2017 from 2.0% y/y in 2016. This was reflected in the mild recovery in new vehicles sales.
  • The weak economic growth backdrop along with persistently depressed business confidence and declining investment rates contributed to the dampened corporate demand for credit in 2017.
  • Concurrently, muted rates of household credit extension were linked to depressed consumer confidence, elevated unemployment rates, slower income growth, high levels of indebtedness and a higher tax burden that will have discouraged households from making major purchases and obtaining credit to aid the cost of financing those purchases. In addition, there was a tightening in consumer credit supply conditions (see figure 5).
Figure 2: Private credit extension and nominal GDP
Figure 3: Growth in the components of PSCE
Figure 4: Household mortgage advances and unsecured credit growth
Figure 5: Credit standards for approving loans