South Africa’s lending taps not flowing

Despite declining interest rates and higher credit demand, lenders in South Africa remain cautious, particularly those who extend dangerous short-term credit.

In their latest Economics Weekly, FNB economists analysed the National Credit Regulator’s latest data for the third quarter of 2024.

The economists explained that the data revealed a mixed outlook for borrowers in South Africa.

Secured credit expanded in the third quarter, but weak new mortgage lending and higher short-term loans suggest enduring financial pressure on some households. 

However, the economists explained that high credit rejection rates limit access to formal credit for many, potentially driving them towards costly alternatives.  

This is due to lenders in South Africa remaining cautious, with rejection rates at 67.6%, down slightly from 68.0% in the second quarter of last year.

The economists explained that banks dominate the local credit market, with these institutions controlling 79.3% of new loans and 85.1% of the gross debtors’ book.

The credit granted by banks was up 3.0% in the third quarter of 2024 compared to the second quarter. 

However, they said non-bank lenders continued to outperform, at an increase of 6.6% quarter on quarter. 

For example, non-bank vehicle financing rose by 7.7% quarter on quarter, and retailers saw strong growth of 6.1% quarter on quarter and 80.8% year on year in store credit.

The economists said this indicates a growing shift towards in-store credit.

In 2019, new retail credit was approximately half the size of non-bank vehicle financing. In the third quarter of last year, these industries were almost the same size. 

In Mr Price’s latest results for the third quarter of its 2025 financial year, the retailer said its cash sales grew by 11.1%, increasing its total contribution to retail sales to 90.9%.

However, the retailer said its credit sales also increased 5.7% despite the group’s cautious implementation of its account approval framework.

“This was against a backdrop of consumer credit applications reaching an all-time high in Q3 2024, while rejection rates remain elevated,” the retailer said.

However, the economists pointed out that “other credit providers” – including micro-lenders and pension-backed lenders – declined significantly by 8.7% quarter on quarter and 24.8% year on year in the third quarter of last year.

They said this suggests reduced demand or tighter lending conditions.

This comes despite a decrease in South Africa’s interest rates, which started declining in the third quarter of last year.

In September, the Monetary Policy Committee entered into a cutting cycle that has seen rates come down by a cumulative 75 basis points so far.

Many economists expect more interest rate cuts to come this year, although they have warned that the cycle would be shorter and more shallow than many may have hoped.

FNB’s economists explained that the anticipated rate reductions in 2025 may offer further relief to those with mortgages and other secured loans.

However, they said the impact on expensive short-term and unsecured borrowers will likely be limited, as these products are less sensitive to interest rate fluctuations.  

“Looking ahead, the fourth quarter data will be crucial for understanding evolving borrower behaviour, especially within the unsecured credit market, following the introduction of the two-pot retirement system savings withdrawals,” they said. 

“That said, the consumer environment has shown marked improvement in recent months, bolstered by lower inflation and indications of accelerating wage growth.” 

“Could this be the saving grace for those reliant on expensive credit? Only time will tell.”

In October last year, FNB economists cautioned that while short-term loans can provide quick relief, they often carry higher interest rates.

This raises concerns about debt sustainability for households already under financial pressure.

“The implications of these trends for consumers are mixed. Those with access to mortgage and secured credit may benefit from improved market conditions and lower interest rates,” the economists said. 

“However, reliance on expensive, short-term, and unsecured credit poses risks for financially vulnerable households.”

“Many unsecured loans are not tied to prime lending rates, so lower interest rates may offer limited immediate relief.” 

They said this uneven credit recovery highlights the risk of over-indebtedness for certain consumer segments, emphasising the importance of careful financial planning.