South Africa’s banks are closing the taps

 ·29 Feb 2024

South African consumers are turning to credit cards to supplement their lifestyles – but banks are extremely cautious when lending.

According to Nedbank’s latest assessment of the broad money supply and credit, growth in household credit slowed to 4.1% in January 2024 – the lowest level since March 2021.

“The household market weakened further as the impact of higher interest rates continued to bite, poor economic prospects eroded household confidence, and commercial banks were more cautious in extending credit,” said the Nedbank Group Economic Unit.

That said, the performances of the various subcomponents were varied.

Home loans remained subdued, with yoy growth unchanged at 3.3% in January.

Personal loans declined from 4.2% in December 2023 to a two-year low of 1.2%.

Credit card usage, however, remained robust, dropping slightly from 9.3% in December to 9.2% in January, while overdrafts recovered from a sharp contraction of -4.6% to 0.9%.

“We expect credit demand to remain subdued in the first half of 2024 as the cumulative impact of the interest rate hikes will continue to filter through the economy,” said Nedbank’s economist.

“Confidence also remains fragile, given the poor growth prospects and heightened policy uncertainty ahead of the national elections. As a result, households will remain cautious of borrowing and spending extensively on non-essentials.”

“At the same, commercial banks will remain wary of accelerating credit extension given the
strains on household finances.”

Several financial service providers have noted that South African consumers are increasingly failing with their debt repayments.

In its results for the six months ended 31 December 2024, FNB said that its impairment charges increased by 31% as customers struggled with high inflation and elevated interest rates.

The credit loss ratio thus increased from 128 basis points in the prior period to 155 basis points in the reporting period.

“The strain was most evident in the retail portfolios,” FNB said.

Nedbank’s economists said that renewable energy projects will likely support corporate credit demand.

Nevertheless, many companies will cut back on large capital expenditure projects amid fading profits and high operation costs.

“We expect credit growth to improve gradually during the second half of the year as the interest rates ease and the economy recovers slightly.”

Read: The truth behind South Africa’s ‘two-faced’ budget

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