Consumers turn to credit to cope with rising cost of living in South Africa
Economists from Nedbank say that south African households are increasingly turning to credit lines to help cope with the growing cost of living crisis in the country.
Commenting on money supply and credit data for September, the finance experts noted credit growth accelerated further in September at rates higher than expected but will probably start to moderate after the festive season.
Money supply rose by 0.7% month-on-month in September, lifting the annual growth rate to a six-month high of 8.8% from 8.1% in August. The figure was higher than Nedbank’s and the market’s forecast of 8.1% and 8.3%, respectively.
Banks are also lending more, the bank said.
Growth in private sector credit extension accelerated further to 9.7% year-on-year, the highest since December 2015, surpassing Nedbank’s and the market’s forecasts of 8% and 8.2%, respectively.
“All the major credit categories increased, but the most significant contributor was assets-backed credit, accounting for 50.9% of total credit. Mortgage demand remained firm, with the annual growth rate steady at a robust 6%, while growth in hire purchase and leasing accelerated to 8.9% from 8.7%,” it said.
Demand for other loans and advances, including unsecured credit, remained strong at 15.6% year on year.
“While the annual growth in this category mainly reflects the base effect, the monthly growth was also exceptional for the fourth consecutive month at an average rate of 7.3%,” Nedbank said.
The ‘investment and bills’ category has accelerated at a slower pace for the past four months, thus containing the growth rate in total private sector credit extension. Excluding this category, growth in bank credit rose to 10.5%, the highest since January 2009, mainly driven by corporate credit demand.
According to Nedbank, household credit demand remained resilient, growing by 7.2% year-on-year from 7.1% in August.
“Growth in general loans and credit cards increased further, probably reflecting distressed borrowing as consumers supplement spending given the rising cost of living,” it said.
Asset-backed credit remained firm but has accelerated at a slow pace for the third straight month in September as the impact of aggressive interest rate hikes took effect.
Data from consumer credit reporting agency TransUnion showed that credit originations continued to rebound amid a tough economic climate in South Africa in September.
However, it said that despite the resurgence in card originations, current volumes remain below pre-pandemic levels.
According to the group, the average credit line per account is R36,800, while the average balance per account is R21,200.
Nedbank noted that credit growth has been more resilient than anticipated, and it will likely remain strong in the last quarter, sustained by higher consumer spending during the festive season.
However, it said that household demand would eventually moderate as higher borrowing costs erode disposable income, weigh on consumer confidence and cause households to be more cautious about taking on more debt.
Read: The average credit card debt in South Africa – how much we owe
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