GROWTH in borrowing by households and private companies last month accelerated at its strongest pace since March, boosted in part by another surge in unsecured lending, says the Reserve Bank.
This will add to concern over the pace of lending to heavily indebted consumers, amid evidence that the number of people with impaired credit records is steadily rising.
Unsecured personal loans to consumers made up only about a seventh of the R30bn total credit extended, but they increased by 36% compared with the same month last year.
"We have more and more people going under debt review — clearly the credit health of consumers is deteriorating," National Credit Regulator CE Nomsa Motshegare said on Monday
There are about 106,000 people under debt review, with an average of 6,500 new applicants each month, she said. People who apply for debt review get legal protection and a counsellor helps them restructure what they owe.
Debt counsellors say a rising proportion of new applicants are low-income earners. The trend has not been lost on the Treasury, which will make an announcement on the issue this week.
The Bank has said there is no evidence that unsecured lending has had an adverse effect on the asset quality of the banking sector as impaired advances as a percentage of gross loans and advances measured 4.4% in July compared with 5.5% a year earlier.
But data from the National Credit Regulator shows that nearly 50% of South Africa’s 19.5-million credit active consumers have impaired records with a range of financial service providers — they are one to three months in arrears, or have accounts which have been handed over to debt collectors, or written off. "This is concerning … those numbers are going up and you know that something isn’t right," Ms Motshegare said.
Normally, credit figures are an indicator of the pace of economic growth, which is slowing in SA.
Private sector credit extension overall grew by 9.1% year on year last month, the Bank’s data showed, well above the previous month’s increase of 7.93% and surpassing forecasts for a rise of 8.3%. The main driver of last month’s increase was growth in borrowing by companies, which rose by 9% year on year to R18.6bn, compared with the previous month’s rise of 6.8%.
At face value, this appears surprising as business confidence is low and private companies are sitting on cash deposits of about R530bn.
But Absa Capital economist Ilke van Zyl pointed out that companies could borrow cheaply on a short-term basis to cover operational costs, while investing at a higher interest rate in other financial instruments.
Total household credit, which includes mortgages, grew 9.1% year on year last month, roughly the same pace as in August. "Given that we are sitting in a weak economic environment, the increased lending points to distressed borrowing … in my opinion it’s not sustainable and will make consumer balance sheets more vulnerable," Ms van Zyl said.
A further breakdown of the data showed that growth in credit card spending rose 15.2%, up from 14% in August. Households spent R1.21bn using their credit cards last month, the highest figure on record for September since a credit boom in 2006, Ms van Zyl said.
Growth in mortgage lending — which accounts for about 46% of total private sector credit — was muted at 1.7% year on year last month, down from 2.1% in August, Bank data showed.
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