South African consumers have begun displaying a reluctance to take on more credit, a sign that the cumulative increases in interest rates since the end of 2021 have left them in a tight financial spot, according to a report by Nedbank.
The JSE-listed lender’s group economic unit released its broad money supply report, which looks at money supply and credit behaviour in the country, on Monday. It shows that household credit growth eased to 6.5% in June, from 6.7% in May.
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Nedbank says the slowdown was largely driven by households turning away from typically more expensive unsecured lending as overdrafts moderated to 2.2% from 4.5% in May. Growth in personal loans eased to 7.8% from 8% previously.
Credit card lending was the only category that bucked the trend, increasing 9.2% in June, compared to 8.9% in May.
Nedbank said it expects credit conditions to continue moderating for the balance of 2023 as the impact of rapid interest rate hikes by the South African Reserve Bank (Sarb) weighs on already strained consumers.
Since the central bank’s inflation-fighting campaign began in November 2021, the repo rate has increased by a combined 475 basis points as it worked to contain and bring inflation under control.
The Sarb’s aggressive inflation fight has made the cost of borrowing more expensive, which Nedbank says has impacted consumers’ ability to service both new and outstanding debt.
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“Furthermore, weak growth prospects and the subdued labour market will contain income growth and depress consumer confidence,” according to the Nedbank report.
Under the Household credit segment, home loans slowed to 5.8%, while overdrafts decelerated to 2.2.% during the period, from 6% and 4.5% respectively. Personal loans slowed to 7.3% from 8%.
In the corporate lending space, the bank said although demand has been resilient over the past few months, it expects it to be negatively affected by weak domestic and global growth prospects.
“However ongoing investment in renewable energy projects will support the upside. We forecast growth in bank credit to end the year at around 5%.”
Overall corporate credit demand was up 8.3% in June, from 7.7% the previous month, with instalment sales and leasing finance, and overdrafts growing the most at 14% and 11.8% respectively – up from 12.9% and 9.45% respectively in May.
Listen to Jeremy Maggs speaking to Rand Swiss senior analyst Viv Govender on Moneyweb@Midday about pressure being put on the Sarb (or read the transcript):
You can also listen to this podcast on iono.fm here.
