Credit demand takes softer turn in October

Demand for private-sector credit unexpectedly softened in October, serving as further confirmation SA’S cautious businesses are more interested in reducing debt than betting on future growth during a pandemic.

Private-sector credit extension rose 1.3% year on year in October, versus the 1.7% growth expected by economists, and representing a slowdown from September’s 1.6%.

October marked the fourth consecutive month of overall credit growth in SA, but the contraction in corporate credit extension accelerated to 2% year on year, from a fall of 1.5% previously.

Looking at a disaggregation of the corporate data, the unsecured segment, comprising mainly general loans and advances, which is the largest component within the corporate lending space, continued to contract in October, Investec economist Lara Hodes said in a note. General loans and advances fell a further 5% in October, following September’s 3.5% slide.

“Indeed, credit uptake from corporates, which comprises over half of total credit extended continues to reflect the dire effects of the pandemic induced lockdowns on the corporate sector, with a further 172 business liquidations recorded in October, according to Stats SA,” Hodes said. She added that the emergence of the omicron variant now posed a further threat to SA’S fragile economic recovery. Conversely, credit extended to households grew a further 5.5% year on year in October, from 5.4% previously, with robust demand for assetbased finance as consumers took advantage of historically low interest rates.

Credit growth is expected to continue to improve in coming months, off a low base, and mainly buoyed by households seeing a mild improvement in their finances, and benefiting from still-low interest rates, Nedbank Group Economic Unit economists Johannes Khosa and Nicky Weimar said in a note.

“However, the upside will be partly held back by uncertain domestic growth and poor employment prospects, which will weigh on consumer confidence,” the economists said.

“In addition, rising inflation will make consumers more cautious of spending aggressively.”

The emergence of the omicron variant now posed a further threat to SA’S fragile economic recovery