Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd

November 29, 2024

Private Sector Credit Extension (PSCE)

October 2024

In October 2024, credit extended by South African financial institutions rose by 4.3%, with increasing demand in most categories, despite remaining low overall. Recent interest rate cuts totaling 50 basis points may enhance property and fixed asset purchases in 2025 as consumers gain more disposable income, potentially boosting overall demand.

In 2024, credit extended by financial institutions in South Africa increased by 4.3%, following a 4.6% rise in September. This growth was slightly below the market’s 4.5% expectation for September. While credit demand rose across most sub-categories, it remains low, despite the interest rate reduction that occurred in September.

Mortgage advances and credit for acquiring fixed assets remain sensitive to interest rates, and the 25-basis point cut in September hasn’t significantly impacted property demand yet. The recent interest rate reduction in November, totalling 50 basis points for 2024, will likely take time to influence the market, with expected benefits becoming apparent in 2025 as households and businesses gain greater disposable income.

In October, instalment credit sales increased by 0.8%, up from 0.5% in the previous month, reflecting a year-on-year growth of 7.2%. Over the past two years, consumers have increasingly relied on short-term credit to manage financial pressures and rising living costs, as shown by a 4.8% increase in loans and advances, following a 5.0% rise in September.

Growth in asset accumulation through property and fixed asset purchases remains modest, with mortgage advances rising by just 3.1% in October. This slowdown in growth rates for mortgage advances in late 2023 is primarily attributed to the impact of higher interest rates on the property sector. However, the 50-basis point reduction in interest rates should enhance demand for properties and fixed assets in the months ahead, likely becoming evident in 2025. As lower interest rates translate to increased disposable income for consumers, overall demand for goods and fixed assets may also see a boost moving forward into 2025.

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Budget Speech 2025

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