Grim outlook puts businesses off debt

The continue to hoard while the outlook for South Africa remains uncertain.

The Financial Stability Review, released by the South African Reserve Bank this week, found the banking sector's total unsecured gross credit exposure increased by R40-billion in the first half of the year, tallying up to R381-billion in June.

In the second quarter of 2012, credit facilities grew at an annual rate of 43%, followed by unsecured credit, which grew at an annual rate of 36%, up from 31.5% in the first quarter of 2012.

But growth in the demand for credit in the corporate sector slowed to 8.6% year on year in the second quarter, following growth of more than 12% in the first quarter.

"This might be an indication of private companies waiting to see how the economic situation unfolds before embarking on new investments," the Reserve Bank said.

In addition, deposits by private companies at banks increased by more than 13% and 14% in June and July 2012 respectively, raising nonfinancial corporate deposits to more than R538-billion, from the previously estimated R520-billion cash pile.

<strong>Positive externalities</strong>
It is no surprise then that corporate sector investment also slowed in the first and second quarters of 2012.

"Higher levels of investment are needed to support an economic recovery and could result in positive externalities in the form of increased consumer spending through job creation," the review stated.

A survey among manufacturers, conducted by the Bureau for Economic Research, showed there has been a consistent downscaling of fixed investment plans. The survey listed cost of credit, insufficient demand, tax structures and the political climate as factors that constrain investment.

Unsecured lending, thriving in the household sector, appears to be getting larger.

Total unsecured gross credit exposure increased by 20.9% year on year in June 2012 "mainly due to an increase of 51% [R25.2-billion] in the 'retail other' [loans greater than R30&nbsp;000] unsecured lending category."

Most credit was extended by banks and increased at an annual rate of 21%, the Reserve Bank said.

<strong>Credit providers</strong>
The number of applications for new credit during the second quarter increased by 47%, although, of all the applications for credit received by banks and other credit providers, more than 50% were rejected.

It stated that the retail banks appeared to be tightening lending standards during the second quarter of 2012. Seventeen percent of retail banks claimed they had eased lending standards, although 25% claimed they had tightened them.

"Credit losses, however, continued to impact banking sector profitability negatively, especially in the second quarter of 2012," the review said.

Increased credit uptake by the household sector that started in the fourth quarter of 2011 continued into the second quarter of 2012, during which household debt increased by 10% year on year.

Consumers with impaired records increased by 170000 during the second quarter of 2012, and consumers in good standing decreased by 60&nbsp;000.

Of the total credit-active consumers, 53% were in good standing, and 47% had impaired records in the second quarter of 2012.

"It would seem that most consumers have impaired records with non-bank credit providers as the banking sector's ratio of impaired advances to total gross loans and advances is very low," the review stated.

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