Global Courant 2023-04-28 15:43:51
Credit data for March show households in South Africa are coming under increasing pressure and losing confidence in the economy, Nedbank says.
Analyzing broad money and credit data for the month, the financial group noted that the indicators surprised to the downside, stalled by a weak economy and sharply higher interest rates.
Broad money growth slowed to 8.9% yoy in March, down from 10.8% in February, well below our expectation of a slight moderation to 10% and the consensus market forecast of a slowdown to 9. 9%,” the report said.
The drag came from a R54.2 billion drop in net foreign assets and a much smaller increase in private sector claims of a modest R9.5 billion.
Net claims against the public sector and net other assets increased by R64.9 billion and R18.9 billion after a sharp decline in February, the company said.
Household pressure
In the household market, Nedbank said the downward pressure stemmed from slower growth in home loans, which account for 58.8% of all loans to households.
Home loans grew 6.6% yoy, compared to 6.9% in February and 7% in January. Growth in personal loans – the third largest category, accounting for 14.3% of total advances – also slowed from 10% to 9.1%.
“The growth slowdown reflects declining consumer confidence, weaker household finances and sharply higher interest rates. The weakening of personal loans likely reflects tighter credit conditions at major banks in response to higher default rates, also pointing to increasing financial stress among households in this market segment.”
These sentiments were recently expressed by both Capitec and Standard Bank, who noted an increase in loan losses in their respective datasets.
Capitec’s numbers were particularly worrying, with an 80% year-over-year increase. The bank has a customer base of over 20 million people, giving it a comprehensive view of the financial health of South Africans. It has 1.3 million credit customers.
The group noted that while costs are rising, salaries and other revenues are not rising at the same rate, leading more customers to take out credit to get through the month. This in turn has led to more defaults and impairments.
According to Nedbank, household demand for transactional credit is mixed.
The group noted that households are cutting back on overdrafts, which slowed sharply to 3.1% yoy from 8.1%. However, consumers remain heavily dependent on credit cards, which grew at a still robust 8.4% in March, down slightly from 8.9% in February and January.
“Credit growth remains fairly healthy despite the sharp deterioration in underlying economic conditions due to continued power cuts and much tighter monetary policy. Yet the credit cycle has slowed, peaking in the third quarter of last year.
The slowdown is expected to intensify throughout the remainder of this year and early next year.
“Household demand is likely to weaken significantly given mounting pressures on personal incomes and the sharp rise in credit costs. The business market is also expected to weaken.
“While demand for financing will be supported by the need to secure alternative sources of electricity and the wave of renewable energy projects, the expected loss of economic momentum will ultimately undermine corporate profitability and depress credit demand. The risk to the prognosis is on the downside.”
Read: South African households are in serious trouble
