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Unsecured lending plummets as mortgages recover

Mortgage advances more than double in 2014

Unsecured lending experienced its lowest twelve-month rate of growth in more than ten years between 2013 and 2014, driven by restricted access to credit and higher interest rates, the South African Reserve Bank (Sarb) said on Tuesday.

 The twelve-month rate of growth in unsecured lending plunged from a high of 30.1% in January 2013 to 0.2% in July 2014 – “the lowest rate of growth since July 2003,” according to the Sarb.

Growth since then has edged up moderately to 4.1% in January 2015, the Sarb said.

 “The slowdown in this credit category reflects caution by households in the wake of the interest rate increases in 2014 and relatively tight lending conditions, further constrained by weak income growth and tenuous employment prospects,” the Sarb said in its quarterly bulletin, released on Tuesday.

 This, together with a slowdown in loans granted to finance vehicles, meant quarterly growth in credit extension to households slowed to R15.8 billion in the fourth quarter of 2014 from R17.1 billion for the same quarter the previous year.

 Companies drive loan demand

 Total loans and advances to the private sector nonetheless expanded a considerable R192 billion during 2014 (2013: R146 billion), largely driven by increased corporate-sector demand off the back of expansion activity, renewable energy deals and working capital requirements.

“While households appeared to be deleveraging, the corporate sector continued to exploit the current historical low interest rate environment,” the Sarb said.

 Asset-backed credit advances were relatively restrained in 2014, with general loans, bank overdrafts and credit card advances (the ‘other loans and advances’ category) still the dominant driver of credit extension.

 This category grew R121 billion in 2014, compared with the R85 billion growth recorded in 2013.

 The corporate sector was largely responsible for the acceleration in other loans and advances, contributing 85% to their growth (2013: 69%). In sharp contrast, households contributed just 15%, down from 31% a year earlier.

 From a recent high of 10.4% in November 2012, the Sarb says that the twelve-month growth in credit extension to the household sector has been receding over the past two years to a low of 3.5% in January 2015.

Mortgage advances climb

 Mortgage advances rose by R48 billion in 2014, more than double the R21 billion increase in the prior year. This is the largest component of total loans and advances and last year’s growth exceeds the average growth rates of roughly 2% recorded in the preceding three years.

This still remains significantly below pre-crisis levels, with head of economic reviews at the Sarb, Johan van den Heever, saying on Tuesday, “Household mortgages are still fairly quiet”.

Mortgage loans during 2014 were mostly for commercial property, according to the Sarb.

Growth in vehicle finance slows

As sales of passenger vehicles dropped, expansion in instalment sale credit and leasing finance – which mainly represents vehicle finance – declined from a twelve-month-growth high of 14.2% in October 2013 to 6.8% in December 2014.

The quarterly growth in this credit category fell to R6.5 billion in the fourth quarter of 2014, from R9.6 billion recorded during the same quarter in 2013.

The Sarb said the slowdown in vehicle finance began during 2013 and moderated further in 2014. A number of the large banks have seen the profitability of their vehicle finance books decline in recent years, as consumers default on loans and provisioning is increased for more expected defaults.

Chris de Kock, CEO of WesBank, which has 800 000 clients in its vehicle financing business, told Moneyweb last week that the vehicle financier repossesses 1 500 vehicles a month due to non-payment.

 Inflation outlook

The Sarb’s Van den Heever expects inflation to remain close to 6% per annum off the back of a slightly higher oil price, rand weakness and less favourable developments in food prices due to a recent increase in the price of maize.

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