Johannesburg - Growth in unsecured lending to households declined from last year’s highs of 30 percent year on year to 18 percent last month, Annabel Bishop, the chief economist at the Investec group, said in response to data on credit released by the Reserve Bank yesterday.
Jacques du Toit, a property analyst at Absa, noted that “a continued slowdown in growth in unsecured credit balances” was largely responsible for the “gradual downward trend in total credit balances in the household sector”.
He said growth in “outstanding credit balances in the household sector” decelerated to 7.8 percent from 8.2 percent at the end of August.
Lending to households includes instalment sales, leasing finance, mortgage loans, overdrafts, credit card debt, and general advances – mainly personal loans and microfinance.
Rapid growth in unsecured lending has created concern about the potential for a bubble. However banks, facing the rising cost of bad debt, have moderated the pace of lending in this category.
“Tighter regulation of the lending industry overall, and improved credit standards, have resulted in more judicious application of standards, which has taken some of the heat out of microfinance growth,” Bishop said.
Other categories of debt have also been affected.
According to Du Toit, growth in the value of outstanding household mortgage balances remained flat at 2.7 percent in the four-month period to the end of September. “The share of household mortgage balances in total household credit balances was marginally lower at 59.9 percent at the end of September.”
In its financial stability review, also released yesterday, the bank noted that the ratio of household debt to annual gross domestic product, at 75.8 percent in the second quarter, was too high. It warned the turn in the interest rate cycle would expose households and credit providers to further risks.
These risks explain banks’ caution on lending, as well as consumers’ reluctance to get further into debt. The review noted that the FNB/Bureau for Economic Research consumer confidence index fell to its lowest level in more than a decade in the third quarter.
Growth in total credit to the private sector slowed to 7.55 percent in September, from 8.11 percent in August.
Slower credit growth may postpone an interest rate hike. Nedbank predicted the Reserve Bank would keep rates unchanged well into next year.
Bishop said there would be “no interest rate hike this year or next, as households are overindebted, consumer confidence is low, real growth in consumer spending is slowing, as is real growth in disposable incomes”. - Business Report
