The high rate of credit extension in South Africa had become a major concern for the South African Reserve Bank (SARB), the bank’s Governor Tito Mboweni said on Monday while addressing trainee chartered accountants in the Western Cape.
“Consumer spending through credit-card lending has recorded year-on-year growth of 38,6% to a level of R36,9-billion at the end of July 2006, while the growth in instalment-sales debtors has also continued unabated, growing by 18,8% to a level of R201,6-billion over the same period.
“As the regulator of banks, the bank supervision department of the South African Reserve Bank will continue to ensure that banks’ risk-management processes are appropriate for monitoring these activities in the light of increasing household sector indebtedness and the increasing cost of credit.
“This high rate of credit extension has become a major cause for concern for the [reserve] bank. The high levels of credit extension have resulted in record levels of household debt, which have reached levels of almost 70% of household disposable income.
“The high levels of consumer expenditure have also contributed to the expanding deficit on the current account of the balance of payments.
“These developments pose a threat to the inflation outlook, and have prompted the Monetary Policy Committee [MPC] to raise the repo rate by 50 basis points at each of the past two MPC meetings,” the governor said. — I-Net Bridge