Growth in bank lending slowed in June to its slowest pace in the last 12 months, signalling caution from financial institutions about low economic growth and increasing consumer debt.
The slowdown in bank lending comes on the back of rating agency Fitch expecting South African banks to be more conservative in their approach to lending for the foreseeable future.
Fitch said South African households remain under pressure due to the increasing cost of living, higher interest rates, and a stagnant economy.
Bank lending grew by 10% in 2022. However, banks have begun closing their lending taps in 2023, with credit extension growing by only 6.25% in June – down from 6.8% in May.
Banks have flagged rising bad debt as limiting their growth in 2023, with Absa saying in July that it expects credit impairments to rise substantially towards the end of the year.
Absa’s concerns echo those of Standard Bank and Nedbank, who warned that credit impairments related to consumer banking are at elevated levels.
Fitch said the South African banking sector’s non-performing loan ratio rose to nearly 5% in the first half of 2023.
The agency warned that this ratio may rise if the country continues to face elevated load-shedding and sluggish economic growth.
South Africa’s banks can weather this challenge well, with profitability levels remaining high as they benefit from rising interest rates, Fitch said.
While growth in lending may slow, it is unlikely to reach negative levels as the number of new loans taken out by South Africans remains elevated.
Personal loans grew by 7.3% year on year in June, indicating that South Africans are still willing to take up new credit opportunities.
The Old Mutual Savings and Investment Monitor report also showed that an increasing number of South Africans are turning to credit to cover monthly expenses, which may explain why lending remains resilient.
Interestingly, banks also expect lending to corporate clients to remain high as more private companies turn to alternative energy sources to mitigate the effects of load-shedding.