Spokesperson: Siphamandla Mkhwanazi, FNB Senior Economist
Private sector credit (extended to households and corporates) eased further to 5.1% y/y in July, from 5.6% in the previous month. Downward pressure came from corporate credit, while household credit moved sideways. For corporates, the pandemic-induced borrowing is decelerating, with corporate credit softening to 6.6% y/y, from 7.6% in June. Most recently, corporate credit peaked at 9.3% in April, at the beginning of lockdown. Notably, mortgage advances remain relatively robust at 8.9% y/y (from 9.5% in June), while unsecured credit components remain deep in negative territory (with credit cards declining by 39% y/y in July).
Household credit extension growth steadied to 3.2% y/y from 3.1% in the previous month. In the “asset backed” categories, mortgages slowed marginally to 2.9% y/y from 3.0% previously, while vehicle finance continued the recovery path to 4.1% from 3.4% in June, supported by pent-up demand from the lockdown period. By contrast, while demand for mortgages (proxied by internal mortgage applications) has rebounded beyond pre-lockdown levels, mortgage advances continue to trend weaker. We suspect that risk aversion among lenders is effectively keeping a lid on new mortgage approvals amid an uncertain economic outlook and elevated levels of job insecurity.
Similarly, “consumption credit” (i.e. unsecured credit, which encompasses general loans, credit cards and overdrafts) moved sideways at 3.3% y/y, largely supported by an uptick in credit card uptake (2.4% from 1.6% previously). Although still weak, this could lend auxiliary support to the consumption of durable goods.
Looking ahead, we predict weak growth in household credit extension amid rising unemployment, weak real income growth and a deterioration in consumer credit standing. Furthermore, the waning pandemic-induced borrowing by the corporate sector suggests further weakening in private sector credit extension in the near term. All considered, we expect weak private sector credit extension in the medium term.
